In Blow to Consumers, Limit On Debit Card Fees Upheld


The U.S. Supreme Court, without comment, left intact a Federal Reserve rule governing how much banks can collect for debit-card transactions. The Fed rule is a product of the 2010 Dodd-Frank financial-reform law, which told the board to set limits on what are known as interchange fees. Those fees averaged 44 cents in 2009, and the Fed originally proposed capping them at 12 cents.

After a lobbying campaign by banks and payment networks, the board decided to set the limit instead at 21 cents, plus an additional sum to account for fraud losses. The final rule is costing banks an estimated $8 billion annually.

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You may wonder, how is a limitation on debit card fees a blow to consumers? Low fees are good for consumers, right?

Wrong. Typically the merchant you buy products from pays this fee. Higher fees mean higher prices for products, so once again, you might still think this would be a good ruling for consumers.

But it isn't. Banks, like all businesses have to cover their costs, and the arbitrary 21 cents per transaction fee doesn't cover all their costs, such as maintaining the data network and covering fraud losses. So, to make up for their losses on debit card transactions, banks have been raising charges on other services they provide, such as ATM fees, overdraft fees, and other account fees.

These rising fees come as banks continue to look for ways to recoup revenue lost under the Durbin amendment, which took effect last October and limited the fees banks can charge retailers each time customers swipe their debit cards to make purchases, known as interchange fees.

It's almost always a bad idea to let the government set fees and prices. The government has no idea how much things really cost. Merchants claim they were being gouged by bank fees, but they had a choice--they could always refuse to accept debit cards. They didn't, because the convenience to consumers outweighed the costs.

That's why the government should stay out of setting costs except in situations where customers have no choice, such as situations where they have to buy from a monopoly or oligopoly. But the government likes setting prices, like the old central planning boards of the Soviet Union.

Do you think the government would ever consider setting price caps for services provided by groups it favors?

How about setting a limit on college tuition fees, limiting charges to actual sums spent teaching students? Tuitions that are $30,000 a year could drop to $3,000 a year, especially at schools who use a lot of teaching assistants.

How about making abortion doctors charge a fairer rate, say $50 for first trimester abortions, $100 for second trimester and $150 for third, to make abortion more affordable to poor women? The practical effect of such a regulation would probably be to drive abortionists out of business, just as low fees are driving doctors out of accepting Medicaid.



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