Bankruptcy

Interchange Amendment Passes Senate 64-33

By Adam Levitin

Interchange legislation is on the move.  An  amendment the Restoring American Financial Stability Act of 2010, sponsored by Senator Durbin passed the Senate on a roll-call vote of 64-33.  The amendment instructs the Federal Reserve to regulate debit interchange fees and requires that the fees be reasonable and proportional to the costs of the issuer or the payment network.  The amendment also restricts certain merchant restraint rules for credit and debit payments.  It prohibits restrictions on minimum and maximum transaction amounts for credit and debit, and it prohibits restrictions on merchants offering discounts to steer transactions among networks or to other forms of payment (the existing Cash Discount Act does not clearly protect debit discounting, for example, and the card networks' rules largely frustrate discounting as it is). 

The amendment doesn't address all of the problems with interchange, and I would have preferred to see surcharging, rather than discounting, but it's a very good start (and I think arguably the Fed could permit surcharging as part of regulations implementing the amendment).  Of particular importance is that (if the amendment becomes law) a federal regulatory agency is now clearly vested with authority to regulate interchange, and that reasonable and proportional is set as the standard for the level of the fees.  That's a major change from the current situation in which interchange is beyond the regulatory sphere.  To be sure, there's no analogous provision in the House bill, which raises an issue for conference, if the Senate bill passes, but this is a major step forward on fixing the interchange market. 

Full post as published by Credit Slips on May 13, 2010 (boomark / email).