Felix Salmon

Don’t blame regulation for your credit card bill

Felix Salmon
Jan 14, 2013 21:08 UTC

Let’s nip this one in the bud, shall we? Here’s a headline from David Morrison at Credit Union Times: “CARD Act Has Kept Card Interest Rates High, Analyst Claims”. He’s talking about a 16-page paper from Tim Kolk, who’ll email you a copy if you ask him nicely and/or drop my name. But here’s the gist of his argument:

Since 2008, benchmark auto loan rates and mortgage rates have declined by 30% and 42% respectively while credit card interest rates have declined by only 3%.

If credit card interest rates had declined in an amount proportional to the mid-point decline of other lending products, then average credit card interest rates would have declined by 410 basis points since 2008.

The additional interest costs of these higher-than-otherwise expected interest rates are estimated at $28 billion annually.

Kolk even has a handy chart:


This seems clear, no? The spread between credit card rates and the prime rate used to be low, and then the CARD Act was introduced, and now it’s high. What’s more, says Kolk, “the great majority of the above rate increase can be attributed to CARD Act”, which introduced a host of consumer protections for credit card holders.

There’s no doubt that $28 billion is a lot of money, and that if Kolk is right, that would be a huge black eye and unintended consequence of the CARD Act. Fortunately, he’s not right, and there are three ways of showing that.

First, let’s zoom out a bit and show what’s happened to credit-card interest rates, and the prime rate, over the past 17 years:


What you can see here is that credit-card interest rates are much less volatile than the prime rate: they stay in a pretty narrow band between 12% and 16%, even as the prime rate has a much greater range. And while there are lots of relatively small moves up and down in credit-card rates, they don’t bear much relation to what’s happening with the prime rate, which moves slowly.

To put it another way: the prime rate is locked directly to the Fed funds rate: it’s basically set by the Fed. Credit card rates, by contrast, are not: the Fed has much less control over them. And so you’d expect the spread between the two rates to be pretty volatile. Which it is! What you might not expect, however, after reading Kolk’s paper, is that the spread came down after the CARD act came into force. Here’s the spread between the two interest rates: the red triangle marks the point at which the CARD Act was signed into law.


This is not the chart you’d expect from reading Kolk’s report — which, incidentally, never mentions when the CARD Act actually started taking effect. What you see here is a lot of more-or-less random ups and downs: for instance, the all-time low in the spread, of 552bp in May 2000, took place when the prime rate was a whopping 9.24%. Kolk would have you believe that this series should go down when the prime rate goes down, but in fact it’s more likely to go down when the prime rate goes up.

The one very clear trend — as you’d expect — is that when the country is in the midst of a gruesome credit crunch, the spread on credit-card interest rates goes way up. But then, after the CARD Act was introduced and liquidity started coming back into the system again, the spread started falling.

In any event, it’s just intuitively wrong that credit-card interest rates would mirror the Fed funds rate. The Fed does have a pretty strong effect on mortgage rates, and car-loan rates, because people shop for mortgages and car loans on the basis of where they can get the best rate. But credit cards don’t work like that. Their interest rates change in unpredictable ways, and in any event, when most people get a new credit card, they’re either taking advantage of a limited-time introductory offer, or else they’re fully intending never to pay any interest at all.

Credit card companies have a fiduciary responsibility to maximize their profits, and that in turn means they have to maximize the interest rates they charge. They’re good at doing that: like a magician, they force your attention to one place, full of shiny objects and bells and whistles, while quietly picking your pocket at the same time. They also take full advantage of behavioral economics, and the way in which we convince ourselves that we will be very fiscally prudent in the future, even if we weren’t in the past. They have every incentive to behave this way, and that’s exactly what they do, whether the CARD Act is in force or not.

Kolk has a series of perfectly valid points demonstrating that the CARD Act has reduced the amount of money that credit card issuers can make from their cards. That was entirely deliberate and intended. But there’s a common fallacy that if a company loses money in one area, it has to “make it up” somewhere else. In reality, the person in charge of that other area was always under pressure to maximize profits, even before the first area ceased to be so profitable.

In order for it to make sense for a credit card company to lower its interest rates, you need something of a perfect storm: not just lower rates, but also an environment where you want to increase your volumes, and an environment where you can gain new customers by advertising lower rates. Right now we’re just not there: credit card issuers aren’t so keen for new customers that they’re willing to lower their rates to get them, and in any case the people getting credit cards aren’t recklessly rolling over their balances, like they did before the crisis: instead, they’re still largely in deleveraging mode.

You wouldn’t expect credit card companies to be competing on interest rates, then — and they’re not. But that’s got nothing to do with the CARD Act. And regardless, as my chart shows, spreads and rates are both down significantly from when the CARD Act was introduced. Sometimes, regulation really does hit the companies it’s intended to hit, without much collateral damage.


Absolutley. The paper includes that point, though Felix’s description of it does not. In this document we are agnostic about whether the cost is worth the benefit; that’s a policy decision beyond the scope of the work. Also, we point out that the there are other consumer benefits that we are unable to quantify in the same way but which clearly resulted from the Act(e.g. lower late fee levels, elimination of most penalty pricing…). I’m a big fan of much regulation: love my clean water, clean air, lack of lead in my kid’s bloodstreams, reasonable safety levels of my food, knowledge that my broker is not running a pyramid scheme, and on and on…

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The decline of credit cards

Felix Salmon
Sep 19, 2012 14:19 UTC

Remember when credit-card companies started cutting back on credit lines because delinquencies were going up and people weren’t paying off their debts? Well, pull out your hankies and prepare to dry your eyes: now they have the opposite problem. Harry Terris at American Banker has a classic headline today, “Card Payment Rates Stymie Lending”.

The problem for credit-card issuers, explains Terris, is that those of us with credit cards are doing a much better job of paying off our balances. Here’s the chart, showing the percentage of outstanding principal balance that cardholders are paying off every month:


Well done, America! You’re paying off your credit-card debt at unprecedented rates! And the result is that the total amount of credit card debt in America is going nowhere. Here’s the chart:


After falling sharply during the financial crisis, revolving debt has been flat since the beginning of 2011. And in real terms, of course, that means it’s falling. Here’s the same chart in billions of constant 1982 dollars:


And here’s that same chart, zoomed in to the past 10 years.


The lesson here, for credit-card issuers, is “be careful what you wish for”. They worried about credit-card balances being too high during the recession, and cut off a lot of credit just when people needed it most. And then balances just fell, and fell, and never recovered.

For consumers, this is excellent news. It almost never makes sense to borrow on a credit card: the rates are insanely high, most of the time. Using credit cards can be perfectly sensible: they’re very handy payment mechanisms. But running a balance on your credit card is the first no-no of personal finance, especially if you have any liquid savings at all.

So even as America worries about the rising level of student loan debt, here’s some good news: the level of credit-card debt is going nowhere, and is actually falling in real terms. Let’s keep that up. It will mean lower profits for the big banks, who issue the lion’s share of all credit cards, and it will mean lower interest payments for consumers.

Of course, people still need loans. So once we’ve weaned ourselves off credit cards as a source of credit, the next task is to find an easy and cheap way for individuals to borrow relatively short-term funds. Banks hate personal loans, because they’re not nearly as profitable as credit cards. And peer-to-peer lending isn’t going to work when it comes to supplying broadly-available credit lines. Still, I’m beginning to dare to hope that the credit-card scam — sell convenience, and then make billions of dollars from overinflated interest rates — is beginning to come to an end.


Great topic. Well a smart person doesn’t have a credit card at all, or had one they use only in extremis.

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Prepaid debit-card datapoints of the day

Felix Salmon
Aug 9, 2012 19:20 UTC

Almost everybody interested in extending banking services to the unbanked and underbanked is looking very closely at prepaid debit cards. They can do much of what checking accounts do, without the unpredictable fees, the annoying hours, and the general feeling that if you don’t have a lot of money you’re not welcome.

But now the Philly Fed is out with by far the most detailed research I’ve seen on how people actually use prepaid debit cards, in practice. And sadly for anybody wanting to get into this market, they’re not using them as checking-account replacements.

Using an anonymized dataset covering some 3 million cards and 280 million transactions, the Philly Fed did find that prepaid cards are making significant inroads, especially in poorer areas, as you might expect. Employers, in particular, very much like prepaid cards when their employees don’t have direct deposit: give every employee a single card once, and then just deposit their pay directly onto that card, rather than having to deal with thousands of checks every two weeks. It’s a perfectly sensible way of doing things, and in some counties there is more than one payroll card for every 100 people:


But the lesson of this study is that even if your paycheck is being paid straight onto your card, you’re still not going to use your card like you would a checking account. Most importantly, people just don’t use them for very long: the lifespan of a prepaid card ranges from about 5% to 15% of the lifespan of a typical checking account. If you buy your prepaid card in a shop, you’ll use it for about two months; if you’re given it by an employer, you’re likely to have it for about four months. Which implies that either these jobs tend to be very short-lived, or else that once someone has had a job for four months, they’re likely to get around to opening a bank account.

Or, to put it another way, there’s no evidence here that people are “moving their money” from bank accounts to prepaid debit cards; if anything, it looks like once you start moving decent amounts of money, you graduate from prepaid debit cards to a checking account. Which is probably as it should be, assuming you choose a good bank or credit union which doesn’t rip you off.

If you add up the dollar volume of purchases made on prepaid cards over the card’s lifetime, the sums you get to tend to be very small: the median purchase volume starts at around $25, and peaks around $1,000. That’s not the size of the median purchase, mind: that’s the median size of all purchases on any given card combined.

And when it comes to putting cash onto the cards, or taking it out via an ATM, the transactions tend to be much less frequent than they would be with a checking account, for the very good reason that you generally have to pay for each such transaction. In fact, fees for withdrawing cash from ATMs are the main way that issuers of prepaid cards make money. As a result, prepaid cards, in practice, turn out in this crucial way to be less convenient than a checking account, which always comes with an ATM card you can at least use fee-free at the bank’s own ATMs.

Here’s the chart showing the fees levied by cards used in payroll programs: as you can see, cardholders spend a very substantial amount of money essentially converting their paycheck into cash. Some things you can do with a debit card, but cash still rules. And if you want to be able to move cash around easily, prepaid debit cards are not your friend.


On average, a prepaid card will cost you about $4.88 per month if you have direct deposit, and about $10.72 a month if you don’t: there’s no way to avoid paying substantial fees for putting money onto your card if you don’t have direct deposit. Those numbers are not enormous, but they’re entirely in line with the sums that entry-level checking accounts charge.

The good news, I think, which isn’t in this paper, is that fees are coming down: the rip-off cards are being recognized for what they are, and cheaper, better cards are replacing them. The bad news, however, is that there’s really no indication at all that prepaid debit cards are really being used as checking-account replacements. It’s still possible: maybe the short life of the cards in this study is a function of people switching from bad cards to good cards. But I suspect we’re still a long way from a card issuer where most people hold the same card for years at a time. Unless you count Simple, of course.

(h/t Finkle)


Felix: Look again.

Prepaid cards are mostly used as small gifts. They get one-offed by kids (or adults) taking the cash put on them . . .off.

But another major use for them is money laundering. Prison gangs use them a lot and drug gangs have reportedly used them to transport cash–as they are less bulky than the cash they hold. Sen. Lieberman got his undies in a bunch about this a couple years ago, but the card industry pushed back. [ http://citypaper.com/news/seeing-green-1 .939205 Don’t know how it settled.

However it settled, the proliferation of these in “poor areas” likely reflects both the usual corporate blood-sucking AND the popularity of these things in the shadow economy.

Posted by Eericsonjr | Report as abusive

When credit cards go social

Felix Salmon
Apr 24, 2012 22:18 UTC

There’s a new credit card out there, called Barclaycard Ring, which manages the rare feat of being a good, solid financial product even as it’s also incredibly gimmicky. It’s being branded as “the first ever crowdsourced credit card” — a financial product “built on a community” which, by the looks of the stock photography on the website, is full of incredibly happy, healthy, outdoorsy types who live only in bright sunshine. You don’t just apply for this thing, you “join the conversation”.

Which is not to say you shouldn’t apply. This card has an 8% APR, and no penalty APR. You miss a payment? You default on some other credit card debt? Your APR stays at 8%. For “revolvers” — people carrying a balance — this has got to be one of the cheapest credit cards out there, and certainly one of the least dangerous. The fee schedule is the one place where you don’t find gimmicks: no 0% APR balance transfers (with 3% up-front fee hidden in the small print), no hugely complicated reward program you’re never going to use, no annual membership fee which you have to mentally amortize against the perceived value of all those hypothetical rewards.

I hope and trust that the idea of a card without a penalty APR will catch on. Under new regulations, credit-card companies aren’t allowed to apply a new penalty APR to the entire balance being revolved any more; they have to apply it just to new purchases — and they have to pay that high-rate balance down first. As a result, penalty APRs aren’t nearly as profitable as they used to be. And when you do introduce a card with no penalty APR, it becomes incredibly easy to make apples-to-apples comparisons between cards: you should just go for the one with the lower rate.

Barclaycard is also promising to publish its own P&L statement for the card, showing how much money it’s making from interest payments, from late fees, and from interchange fees. That’s going to be interesting, when it starts being published in the next few months. It says that any profit over and above its own reasonable hurdle-rate expectations will then be rebated back into the “community” somehow, although the exact mechanism here is unclear. The general idea seems to be that if the cardmembers want something like onshore card servicing, then they’ll be given the choice to essentially pay for it, out of the excess profits that the card is rebating back to them.

At the same time, watching a big bank try to be all cool and down with the social kids can be rather like watching your father try to rap. The Twitter feed is embarrassing enough, but the sponsored posts are much worse. For instance: companies who “get” social media are “are the ones that are leading the fold and have good futures ahead of them”, says BrainFoggles, who seems to have been paid to write that by something called Dweeb Media, which specializes in “creating conversational blog post campaigns”.

And when I spoke to Barclaycard’s Paul Wilmore, I was far from convinced when he tried to sell me on the idea that if people with a Barclaycard Ring feel as though they’re part of a community, they’re going to be less likely to default on that card. That might be true with credit-union credit cards, where people really are part of a pre-existing community. But I doubt that the group of people with this Mastercard rather than that one will ever cohere into something real enough to change collective behavior by 200-300bp, as Wilmore is hoping.

For the representative of an exercise in radical transparency, Wilmore was also surprisingly reticent on some pretty basic issues. For instance, what’s Barclaycard’s profit margin going to be on this card? That number is going to be public, but he wouldn’t even give me a hint. Or, why do you need to become a cardmember before being able to read either the official cardmember agreement or the shorter summary agreement? Why aren’t those documents freely available on the card’s website, for people to read before they apply for the card?

Wilmore did tell me, quite proudly, that Barclaycard has filed no fewer than 14 patents around this card, which scared me a little: I’m not a fan of the idea that financial innovations can or should be patented. Insofar as there are good ideas here, I want to see them broadly adopted, but if anything these patents seem designed to discourage anybody else from trying out interesting products in this space.

In a sense, then, I wish that Barclaycard had just released a simple no-annual-fee, no-rewards, no-penalty-APR card and left it at that. I fear that the gimmicky social side of Barclaycard Ring is going to overshadow the fact that underneath its trendy exterior it’s actually a perfectly good product. Even if, as someone in financial media, I will admit to looking forward to those P&L statements.


thanks for credit card information and this is very good information on credit card.

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Why you should always contest a credit-card lawsuit

Felix Salmon
Apr 3, 2012 19:01 UTC

Well done to Joe Nocera for giving some well-deserved publicity to Jeff Horwitz’s fantastic (and still ongoing) investigation into the way that banks encouraged debt collectors to sue Americans for credit-card debt they didn’t owe.

Nocera also raises the possibility that people might start, quite rationally, simply walking away from their credit-card debts in much the same way that they have been walking away from their mortgages.

Lawyers on the front lines say that credit card debt collection remains a horrific problem. “Most of the time, the borrower has no lawyer,” says Carolyn Coffey, of MFY Legal Services, who defends consumers being sued by debt collectors. “There are terrible problems with people not being served properly, so they don’t even know they have been sued. But if you do get to court and ask for documentation, the debt buyers drop the case. It is not worth it for them if they have to provide actual proof.”

There are very serious questions about the reliability with which debtors are actually served by the collection agencies who buy credit-card debts from the big banks for as little as $0.018 on the dollar. All too often, the debtor doesn’t even know that they’ve been “served”, and therefore default judgments get filed against them even when the underlying documentation is weak or nonexistent.

But if you do find out that a collections agency is suing you for unpaid credit-card debt, then you should absolutely turn up in court and ask for documentation. By that point, of course, any hit to your credit will already have happened, so you can’t damage your credit score by fighting the suit and refusing to pay.And the simple act of asking the plaintiff to prove that you owe what they say you owe will very often make the whole suit disappear.

So get the word out: if you, or anybody you know, gets sued for unpaid credit-card debt, the first thing you should do is simply ask the person suing you to prove that you owe what they say that you owe. The onus is not on you to provide documentation that you paid off the debt, or anything like that. The onus is on them to prove that the debt exists. Borrowers should not shy away from asking for this proof out the moralistic feeling that they should pay back what they owe. And it turns out that much of the time, the debt will have been sold to them by a bank refusing to make “any representations, warranties, promises, covenants, agreements, or guaranties of any kind or character whatsoever” about the accuracy or completeness of the debts’ records. If that kind of language is in the transfer documents, it’s very unlikely that the collections agency will be able to win a contested lawsuit.

If people start contesting these suits en masse, then that will surely reduce the attractiveness, to the banks, of selling written-off debt to sleazy collections agencies en masse. If banks want to sue borrowers for money those borrowers owe, let the banks do so themselves. At least it’s more honest that way.


My pretrial court experience

I have a trial date set for early next month in New Jersey, and I believe I have a fairly good chance of wining the case based on the fact that the Plaintiff (a junk debt buyer), doesn’t have “legal standing”, and actually admitted that fact in pretrial. However after experiencing the overall environment in that pretrial hearing, my sense is that there’s a built in bias within the court system against the consumer and in favor of debt collectors.

My experience within the “settlement negotiations processes” convinced me that a predisposed alliance exists between debt collectors and the court system, irregardless of what the actual facts may be…of course I hope I’m wrong.

In my particular situation, the law clerk or volunteer assigned to mediate started out cordial enough and friendly, however his tone soon changed when I began to present the facts and refused to negotiate and when I referenced my defense of “standing”, he attempted to coheres me into accepting a settlement, and the lawyer for the Plaintiff chimed in and admitted that the documentation provided during the discovery phase was faulty, but then sited some ambiguous case law, in New Jersey…the mediator certainly didn’t approach is task as a mediator, but rather as an advocate for the Plaintiff.

I’ve done my homework and I’m defending myself, and I’m confident that if the process is fair and based on the actual facts of the case, I should prevail…however my personal and recent experience with the court system suggests otherwise.

Ironically I just received today by certified mail a “NOTICE OF MOTION FOR A SUMMARY JUDGEMENT” by the plaintiff’s attorney, I have 10-days to respond, and object to this motion…obviously they don’t want to go to trial to prove their case.

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Will US courts take aim at credit-card interchange?

Felix Salmon
Jan 12, 2012 22:03 UTC

Dan Freed has an amazing story today about credit-card interchange fees — the ones that weren’t touched at all by the Durbin amendment in the Dodd-Frank bill. But it turns out that the courts might yet prove even tougher than Congress: various suits working their way through the legal system could end up costing the banks hundreds of billions of dollars in settlement costs — plus a reduction of interchange fees to something approaching international norms.

The threat here is very real: Visa has already put more than $4 billion in a litigation escrow account, and the card companies’ potential liabilities are much smaller than those of the big banks. Deutsche Bank analyst Bryan Keane says that total damages “could total a couple of hundred billion dollars”, and that’s backed up by some back-of-the-envelope math:

JPMorgan’s 10-K gives no specific numbers regarding its exposure, but notes that, “based on publicly available estimates, Visa and MasterCard branded payment cards generated approximately $40 billion of interchange fees industry-wide in 2009.”

Those numbers cited by JPMorgan would appear to point the way to a very large settlement, since the case covers eight years and counting — from 2004 through the present. Eight times $40 billion is $320 billion, and an influential 2005 report on price-fixing by Purdue University economics professor John Connor that looked at 700 cartels going back to the 1600s found a median overcharge rate of 25.5%. But even if one assumes an overcharge of just 10% — the figure used by the Justice Department in its antitrust cases — that would suggest $32 billion of overcharges over eight years. That number, however, would be trebled, as is the rule in antitrust cases, meaning damages could conservatively be estimated at $96 billion. If Bank of America had to pay roughly 10% of that, as per its 10-K, the bank would have to cough up $9.6 billion.

Freed includes this helpful chart, showing just how high US credit-card interchange fees are when compared to the rest of the world.


Note that the smallest bar, over to the right, is for the EU as a whole. If Germany is at 1.5, Spain is at 1.1%, and the UK is at 0.8%, then there have to be a lot of countries at or very close to zero in order to bring the overall average down to 0.3%.

Now that Congress has decided quite clearly that it’s not going to regulate credit-card interchange fees, it stands to reason that merchants are going to take their case to the courts. This one will run and run, I’m sure: there won’t be any checks written for a very long time yet. But it’s a huge contingent liability for the banking sector, just as negotiations over a mortgage settlement come to a head. If I were a bank shareholder, I certainly wouldn’t count on credit-card interchange fee remaining at its current inflated levels indefinitely.


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What happened at Chase’s credit-card collections arm?

Felix Salmon
Jan 11, 2012 15:11 UTC

Jeff Horwitz has an astonishing story about Chase’s credit-card collections efforts, which look as though they’re riddled with sloppy record-keeping and even possible fraud.

Consider Dade County, for instance, in Florida: Chase was filing claims at the rate of 640 per month in January. And then, after April — nothing. There were a lot of layoffs in New York, too:

In a sign that Chase acted with urgency, numerous regional collections teams were fired in mid-2011 at the order of the New York bank’s headquarters, according to people familiar with the events.

“Nobody told anybody anything. It was very traumatic,” says a former Chase attorney who asked to remain anonymous because of a nondisclosure agreement. “I think there were investigations by the [Office of the Comptroller of the Currency] and other government entities. If we’re not there, we can’t be interviewed.”

Now every bank has a choice when it comes to defaulted debts — it can chase those claims itself, or sell them on to a collections agency. Maybe Chase just decided that supporting an in-house team wasn’t worth it, and that it would outsource most everything, going forwards. Except, Horwitz couldn’t find any surrogate claims, either, in a recent search. And then the whole thing seems to be very closely related, at least in timing, to a lawsuit in Texas last spring:

Linda Almonte, a former team leader in Chase’s San Antonio credit card services division, accused the bank of firing her for objecting to the sale of $200 million in legal judgments obtained by bank attorneys. Half the accounts lacked adequate documentation of judgment and one-sixth listed the wrong amounts owed, Almonte claimed in a suit filed in U.S. District Court for the Western District of Texas.

In its response, Chase did not dispute inaccuracies in the debt balances and documentation. Instead, it said its sales agreement allowed for errors and thus was proper. “[T]he parties explicitly agreed that the judgments were purchased ‘as is’ and “with all faults,” Chase’s attorney wrote.

Chase was unsuccessful in getting the case dismissed and settled it on undisclosed terms last April; it ceased filing new consumer debt lawsuits in many states the same month.

While collections agencies often get the amount owed wrong, no one really stopped to ask whether banks themselves might not know how much they were owed. But that seems to have been the case here: Chase was selling faulty claims to collections agencies, and I’m sure those agencies didn’t suspect for a minute that the amounts owed were often incorrect. After all, the reason you’d buy claims from a bank “with all faults” is precisely because you don’t expect there to be many faults.

Already, the move seems to be having a negative effect on Chase’s collections:


Third-quarter collections, at $266 million, were down 35% from the first quarter, and haven’t been this low in a very long time. And if Chase is willing to give up anything like $100 million per quarter by effectively shutting down its collections operation, one can’t help but suspect that the legal or reputational risk of keeping that operation in place was truly enormous. I hope that American Banker encourages Horwitz to continue digging into this case: there could be a really big story here, somewhere.


The reason Chase lost on collections is because of it’s failure to work with the American people that lost income and jobs because of mortgage schemes. To add to that they burdened the people with double and triple payments. Then, they refuse to take any less or provide any payoff assistance! I have heard so many people say that the only company that would not allow them to make a lesser payment until they found work was Chase. So they could not pay off their owed debt. So I have no sympathy with a company like that!

Posted by atxgrl | Report as abusive

The Fed caves in to banks, interchange edition

Felix Salmon
Jun 30, 2011 08:44 UTC

I could really do with a lot more transparency from the Fed on why exactly it’s decided to almost double the maximum permitted debit interchange fee. The bank lobby certainly had a lot to do with it — but the bank lobby always said that the Fed was simply doing what it was forced to do under the Durbin amendment to Dodd-Frank, and that therefore Dodd-Frank itself had to be changed.

When the Durbin amendment survived, however, suddenly the banks realized they had a Plan B — to lobby the Fed. And the Fed, it turns out, is even more susceptible to such lobbying efforts than Congress is. The sole dissent among the Fed governors was from Elizabeth Duke, who said that the new fee was too low.

Clearly the facts on the ground didn’t change between December, when the Fed came up with its 12-cent figure, and today. And now the Fed has proved itself susceptible to intense lobbying, you can be sure that the banks will keep their lobbyists active on all manner of rules and regulations which have to be promulgated under Dodd-Frank. Never mind what the law says, just make sure the regulators do what you want!

The optics of this are terrible — the Fed hasn’t even attempted to justify the hike, and indeed no matter how many times you read its press release, you’ll never be able to see that there was any hike at all. There’s talk only of the final fees, and no talk at all of the fact that they were raised substantially from the initial 12-cent proposal. The closest that we get is this, from Ben Bernanke:

We received input from more than 11,000 commenters on our proposed rule. We have taken the time needed to review these comments carefully; they have been very helpful to us and the final rule reflects changes suggested by commenters.

The message, here, is clear: keep on lobbying us! The more you lobby us, the more we’ll listen!

Why Bernanke’s sending that message, on the other hand, I have no idea.


“Why Bernanke’s sending that message, on the other hand, I have no idea.”

I think you do….

Posted by maynardGkeynes | Report as abusive

Durbin, Dimon, and interchange

Felix Salmon
Apr 14, 2011 19:32 UTC

Dick Durbin’s bodyslam of Jamie Dimon on the subject of debit interchange is, simply, a must-read. If Durbin ever had any dreams of a cushy sinecure on JP Morgan’s board, those have surely now been quashed forever — but being able to write a letter like this on official US Senate letterhead makes it oh so very worth it:


He’s also not afraid to get personal:


It’s always difficult for a sitting US senator to pick a fight with a US citizen, because it’s so hard to fight back: it can look like very much like bullying. But Jamie Dimon is no ordinary US citizen, and in fact has more power than Dick Durbin or any other senator. When it comes to bullying, the financial industry clearly has much more control of Congress than Congress has over the financial industry. Durbin, here, is just standing his ground in the face of an astonishing onslaught of mendacious lobbying from Dimon and his minions. Good for him!

If and when Durbin finally wins the debit-interchange fight, he might think about next turning his attentions to credit interchange. This chart comes from Nerdwallet’s Tim Chen:


Credit-interchange fees in the US are not only the highest in the world, they also make life particularly difficult for smaller merchants:

According to NerdWallet’s calculations, a small supermarket pays $1.15 to process a $50 credit-card transaction from a Visa Signature” customer, while a large supermarket pays $0.63 to process the same transaction from a basic or simple rewards customer…

In the United States, the level of “swipe” or interchange fees appears to be based on merchants’ ability to negotiate (Walmart pays substantially lower processing fees than smaller stores and restaurants). The regulated interchange fees in Europe seem to be based more on the costs of processing.

It’s worth noting that even the super-low fees begrudgingly allowed Walmart are significantly higher than the regulated fees just about anywhere else in the world.

There’s a case to be made for credit interchange fees being significantly higher than debit interchange fees. But there comes a point at which they’re simply ridiculously high by any standard — and the US has now reached that point. If Jamie Dimon continues to anger Durbin on the subject of debit interchange, I do hope he gets his comeuppance on the credit-interchange front.


I hope Durbin doesn’t have any secret vices. If Elliot Spitzer taught anyone anything, its that Wall St. has no problem getting dirty when a politician goes after them.

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