Monday, December 5, 2011

Debit Card Fees - Simply another front in the ongoing class war

I just read this commentary in the Washington Post: In cutting debit card fees, Fed should use Congress’s standard. I could not disagree more. I have not got a clue where the author is getting his numbers? My guess is that he is calculating the $7B vs. $14B based the campaign marketing numbers used to sell the bill to congress and the public. There are flaws in this type of thinking and I'll get into that below, however, this did get me thinking of a related but bigger problem.

I'm sure by now everyone reading this has heard about the class warfare arguments in politics. Whether you believe the "rich" should pay more or not is one issue but to me, the bigger issue is the class warfare campaign. This is a slippery slope. Take for instance the Dodd-Frank Wall Street Reform and Consumer Protection Act. This is another battle of the same war being fought under the guise of "consumer protection."

I've briefly touched on the Dodd-Frank Act before. I think that this entire bill is a big can of worms that many proponents don't understand or choose to blindly ignore. Some of the provisions of the act that has generated buzz in the payments space are the restrictions it places on debit card transaction fees. Merchants have been told they will receive huge cuts in fees due to this bill. The NRF jumped on this bandwagon early in the process. I have not fully researched their involvement, but I would not be surprised if they provided parts to create this wagon.

There is one key component that the NRF and other merchant advocates blindly missed - the title of the act. Note the last two words just before Act: "Consumer Protection!" Not "Merchant Protection." Definitely not "Bank Protection." While today having the word "bank" in your name is synonymous to "rich", who's to say that tomorrow "merchant" won't be as offensive as "bank" to politicians? Currently the Dodd-Frank Act does not specify that merchants, or consumers for that matter, will receive one dime from the restrictions as there are many hands in the fee structure pie (not to mention various carved out exceptions). I can easily see a scenario where politicians realize that consumers are not reaping the rewards they were so generously promised so out pops "[insert name(s) here] Main Street Reform and Consumer Protection Act." Since politicians are so good at adding language to fix prior failures, one can expect a generous heaping of price controls for merchants to swallow, all under the same guise of "consumer protection."

As I said, this is a slippery slope. I've warned of side effect of price controls before this Dodd-Frank Act was implemented; we are seeing them now (see my previous post). One of the latest is that Visa and MasterCard have increased credit card fees: New Visa, MasterCard rates take effect. While not publicly stated, I have to imagine that this is to compensate for the loss of debit card fees. Since credit card usage rates are still higher in the US than debit card usage, this will mean a wash or an increase in fees even if the merchant does receive the debit card "rewards."

Just to clarify, I am not anti-merchant, and I am not pro-bank fees; instead I am very pro-merchant. I am against the government controlling prices for any industry. I feel allowing the government to dictate the price of any product or service is dangerous. Yes, there is precedence for government dictated price controls and some might argue this to be a good thing, and throw out some examples. But I would argue that these price controls have caused as much or more damage and problems than they fixed -- just to someone else (the politically out of favor class at the time).

Until next time...