Most Americans began 2011 having never heard the phrase “debit interchange fee.” But by year’s end, a few more of us were aware that it refers to the money paid by retail merchants to card-issuing banks when we use our debit cards to make purchases. These fees turned out to be an important battleground in the broader bank fee wars that raged last year, and indirectly provoked outrage over the prospect of fees for debit card use, debit transaction caps, and higher account maintenance fees.
Well, get ready for more skirmishes in 2012, because there’s another interchange fee fight in the offing — this time over credit cards. According to CNBC, equity analysts who cover the financial sector have expressed worry that ongoing litigation involving several major banks could lead to a cap of 0.5% on credit interchange fees — one-fourth of what’s currently charged — potentially dragging down bank earnings. If that happens, consumers who are used to generous credit card rewards programs complete with double miles, accelerated earnings, and big sign-up bonuses might get a rude awakening.
A cap on credit interchange fees would be especially painful to banks because, following the debit-fee dust-up, financial institutions encouraged customers to use credit cards rather than debit cards — so they now stand to take an even bigger hit.
This time the fight between retailers and banks is taking place not in the legislative arena, but in the courtroom. A group of big merchants and their trade associations has sued on antitrust grounds, charging that payment network issuers and the big banks essentially got together and flouted antitrust rules to ratchet up the amount they charge merchants in credit card interchange.
For consumers sick of the politicking that went along with the debit interchange battle, this has a couple of advantages: Neither camp can unleash the kind of lobbying muscle both banks and retailers flexed when Congress and the Fed were mulling debit interchange caps. And if banks lose this round, they can’t point fingers at lawmakers and blame regulatory overreach for any fee hikes they push on customers as a result.