Losers in Debit Interchange Ruling: Consumers and the Free Market

As a community banker in Upstate New York, I keep my head down and focus on my daily mission of serving my local community—making loans to local small businesses, helping customers obtain a mortgage or a car loan, or helping them plan for retirement. But when I heard the District of Columbia U.S. District Court ruling on debit interchange on July 31, my head immediately went up. Not only was I shocked that the court struck down the Federal Reserve's rule on debit interchange fees, but even more outrageous was the fact that this decision meant an increase—yes, an increase—in the $6 billion windfall now being enjoyed by merchants, primarily the largest chains.

As a community banker, there are two things that are near and dear to my heart and my bank's mission—my customers and a free-market system that allows my bank, and my community, to thrive. It's a system that works—plain and simple.

That's why it's so disheartening that the real losers in all of this are America's consumers and our free market system. While the merchants have argued that consumers would benefit from lower retail prices, there is no evidence of price declines nearly two years after the fee-cap rule took effect. Further, the decision will have major repercussions for customers' product offerings and financial institutions small and large.

Today, interchange revenue subsidizes financial institutions' cost of offering checking accounts, debit cards and other non-lending products and services. Not to mention the revenue also covers the costs of debit cards and other product and service offerings.  Declining interchange revenue translates into consumers paying more for the products and services that, in many instances, were once free. Consumers will pay more for financial products and services and see no corresponding decrease  in retailer prices. This is a no-win situation for consumers throughout the country.

Consumers and our free-market system have already been put through the wringer enough, courtesy of the latest financial crisis. Why put either through any more change, which will inevitably result in higher costs, lower income and further uncertainty?

Consumers need choice, convenience and a system that works. It's up to us right now, at this time in history, to make sure they are protected and not getting the short end of the stick due to government intrusion into our open markets. Unfortunately, this latest court intervention on interchange is only more inappropriate and harmful government price-fixing.

John H. Buhrmaster is the president of 1st National Bank of Scotia, N.Y. and chairman-elect of The Independent Community Bankers of America.