Setting upper limit for credit card interchange fees not a wise choice
The credit and debit card industry seems to be undergoing a lot of changes in recent months. Now that the senate has approved the legislation that limits the interchange fees on debit cards, it is time to approve the same even for credit cards. While most retailers and consumers are of the opinion that this move would work in their favor, they don’t seem to be getting the clear picture. The interchange or ‘swipe’ fees are the charges that retailers have to pay banks if customers use their debit or credit cards to pay for their purchases.
The Durbin amendment brought about many changes in the banking sector, with the notable one being the cap on debit card interchange fees. However, banks were not ready to take this revenue loss lightly. In a short span of time, they came up with ways to make up for the loss of revenue. Now that the revenue they earn from interchange fees on debit cards is highly limited, they are making up for it by levying monthly debit card usage charges on customer accounts. Though the Durbin amendment for financial reforms was drafted in good faith, banks did find a way to overcome this limitation.
The Credit Card Accountability, Responsibility and Disclosure Act that came into effect in 2009 did offer customers much needed credit card protection. But, banks still managed to find the loopholes and work around the limitations set by this act. It is beyond doubt that this act brought about a lot of transparency and made banks accountable for their charges, but it also gave rise to a number of other fees that banks levied to make up for the loss in revenue. One of the changes was the sudden increase in interest rates on credit cards just before this act came into implementation. In order to soften the blow, many banks charged high interest rates on new accounts before any conditions came into effect.
The latest point being debated in financial circles is setting an upper limit for swipe fees on credit cards. The retailers, with this move, are trying to save more and get more customers to drive their business. But, what they are ignoring is their customers. No doubt the cap on interchange rates will reduce the financial burden on the retail industry, but it will surely increase the burden on customer accounts since they will have to bear the brunt of new fees and other charges being levied on their accounts as a result of this move.
