PIERRE, S.D. – A leading consumer group filed a brief in federal court calling for the judge to reject the pleas by credit union and bank groups to block implementation of the Durbin amendment on debit fees, saying consumers will benefit from regulation of the $20 billion-a-year market.
“The debit card market is broken and consumers have been harmed by the exercise of market power by Visa and MasterCard,” U.S. Public Interest Group said in an amicus brief filed in a suit by Minnesota’s TCF Bank challenging the Durbin amendment. “Because most debit cards issued in the U.S. bear either the Visa or MasterCard logos, merchants have no choice but to accept these cards. Because acceptance of Visa and MasterCard is essential for almost all merchants, Visa and MasterCard have the incentive and ability to increase interchange fees which have harmed merchants and in turn consumers through higher merchandise prices. Indeed, the rapid increase of debit card interchange fees in the past decade demonstrates a significant market failure.”
U.S. PIRG, which has local affiliates in 40 states, has found itself increasingly on the opposite side of credit unions as credit unions have allied themselves with banks on bankruptcy reform, mortgage cramdowns, overdraft fees and card reforms. The group’s brief was submitted the same day CUNA, NAFCU, the American Bankers Association and Independent Community Bankers of America submitted a joint brief urging the court to issue a temporary injunction blocking implementation of the interchange rules.
The consumer group asserted interchange fees harm lower income consumers more than wealthier consumers, who benefit from cards rewards programs that are funded by interchange fees.
“Interchange fees,” argued U.S. PIRG, “were established to compensate the card-issuers for costs such as insurance, fraud, risk of loss, float and processing. Yet, while all these costs have decreased in the past 15 years, interchange fees have continued to increase (over 20% in the past few years, even though all costs of card processing and issuance have fallen). Debit card fees on Interlink, Visa’s debit network, increased over 30% in 2009 alone. The divergence between lower costs and higher fees has grown to the point where card networks no longer even attempt to justify interchange as a method for recovery of the cost of processing transactions.”
The Durbin amendment, said U.S. PIRG, will add transparency to the market. “Simply put, lower interchange fees will lead to lower prices of goods for consumers,” they said.
The group rejected the argument by credit unions and banks that lower fees will cause numbers of institutions to stop offering debit cards. “With the Durbin amendment in place, the affected issuing banks will still maintain the incentives to continue providing debit cards and promoting the use of debit cards for consumers: not because they must, but because the incremental transactional costs for debit transactions are lower than banks’ cost for cash and checks,” stated the consumer group.
