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Congress should abandon the idea of repealing a section of the Dodd-Frank Act that has helped make pricing for payment processing more competitive.
July 14 -
WASHINGTON More than fifty state bankers associations have rallied behind legislation from Rep. Randy Neugebauer, R-Texas, to repeal caps on debit interchange fees.
June 24 -
WASHINGTON Congress may end up revisiting a long-fought battle over debit interchange fees after Rep. Randy Neugebauer, R-Texas, introduced legislation Tuesday that would eliminate current caps that were part of a contentious addition to the Dodd-Frank Act.
June 14
The Beltway debate between the retail and financial sectors over the electronic payment system has flared up again. While retailers are lobbying Congress to extend government price controls to credit card interchange rates, separate bills would repeal Durbin Amendment ceilings on debit card interchange and strengthen merchant security standards.
This war of words has many on Capitol Hill ducking for cover. Congressional offices would generally prefer to avoid this politically fraught debate between two ubiquitous constituencies, and they wonder why the interchange issue is returning to the fore now. Here's why: interchange price controls harm consumers and community financial institutions to the benefit of unsatisfied merchants pushing for more. Now is the time to correct our past mistakes and avoid making new ones.
Consumers and Community Banks
Government price controls on debit card interchange fees were supposed to lower prices for customers. But the evidence increasingly shows that retail customers are seeing no monetary benefit of price controls while losing payment options at the point of sale.
A Federal Reserve Bank of Richmond
Not satisfied with this massive wealth transfer, large retailers are also limiting consumer choice at the point of sale to get an even greater slice of interchange revenues. By
Meanwhile, community banks and other local financial institutions that were intended to be exempt from interchange price controls have
As merchants look to extend interchange price controls to credit cards, we cannot ignore the costs of this failed experiment thus far, which is why Reps. Jeb Hensarling and Randy Neugebauer
Retail Security Concerns
While working diligently to shape the payments system in their favor, retailers have shown less of a commitment to ensuring its security. There have been 235 data breaches at retailers and other businesses so far this year, nearly half of all U.S. breaches and responsible for nearly 2.5 million compromised records, according to the
Community banks and other financial institutions are required to follow appropriate security oversight established by the Gramm-Leach-Bliley Act, but merchants that process and store consumer financial data are subject to no such standards. Despite their porous approach to customer security, merchants have actively opposed congressional efforts to apply a consistent data security framework across the payments system.
To shore up the weak link in the nation's data security defenses, House and Senate lawmakers have introduced the Data Security Act. The act would require all entities that handle sensitive financial data to implement data security processes like those already mandated for banks, replacing the current patchwork of state data security laws. According to the same Morning Consult poll mentioned above, 90% of respondents support such a policy.
Anyone concerned about the potential impact on small businesses can rest easy — the legislation is scalable and flexible to the size and risk profile of covered businesses. So mom-and-pop shops would not have the same level of scrutiny as multichannel retailers with massive databases of consumer information. Instead, the emphasis would be on the large companies that have allowed massive breaches requiring community banks to reissue tens of millions of credit and debit cards to affected customers.
The lightly regulated retail sector is looking to not only exacerbate the failures of interchange price controls in the name of financial gain, but it dares to do so while continuing to put its customers at needless risk. Rolling back debit interchange price controls while bolstering lax merchant security standards will correct previous policy mistakes while ensuring a safer payments system for American consumers.
Camden R. Fine is president and CEO of the Independent Community Bankers of America.