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Support S. 575, a Sensible “Time-Out” to Further Study Interchange Price Controls
An Open Letter to the U.S. Senate
March 30, 2011
By Pete Sepp
I write to express the 362,000-member National Taxpayers Union’s (NTU’s) strong support for suspending implementation of Section 1075 of the Wall Street Reform and Consumer Protection Act. Doing so would allow Congress sufficient time to consider the severe harm that proposed price controls on debit-card interchange transactions would inflict upon consumers, taxpayers, and the economy. For this reason, NTU urges you to swiftly enact S. 575, the Debit Interchange Fee Study Act, introduced by Senator Tester (D-MT) along with a bipartisan coalition of 13 lawmakers.
As you may know, NTU opposed the Wall Street Reform and Consumer Protection Act on many fiscal and economic policy grounds. We have also outlined specific objections to Section 1075, embodied in February 22 comments to the Board of Governors of the Federal Reserve. In these remarks we noted that:
[C]onsumers should be free to choose from a full range of options – whether they are credit cards, debit cards, credit unions, so-called ‘payday loans,’ or other services – based on their own circumstances and preferences. However, through the proposed interchange regulations, the hand of government referred to earlier would tip the scales, and in so doing create an imbalance that detrimentally influences consumers’ decisions. The result would, in many cases, be deadweight losses to the economy, as individuals and businesses choose less efficient payment methods because debit transactions are no longer as attractive to them.
Even if you agree with the direction of the Wall Street Reform and Consumer Protection Act, myriad reasons exist to support S. 575. In a December 2010 letter to Federal Reserve Chairman Bernanke, the House author of the Act Barney Frank (D-MA) cautioned that “the implementing regulations for [Section 1075], if not properly crafted, may have unintended consequences for consumer choice, the protection of consumer information, and Congress’s intent to reduce burdens on community banks, credit unions, and government benefit programs.” Congressman Frank’s reference to benefit programs is an often-obscured point in the current debate, but one which greatly interests NTU. As we expressed in our February 22 comments, “the effect of these regulations on the availability and utility of debit cards in government purchasing – and the potential effect on overhead costs to taxpayers – deserves further examination.” Another factor that merits exploration is whether such rulemaking would render debit cards less efficient for processing government payments to individuals in the future.
Subsequent to the publication of Congressman Frank’s letter, regulatory agencies, consumer advocates, and free-market organizations have voiced a variety of increasingly intense concerns about Section 1075. The provision has even triggered a major constitutional challenge on Fifth Amendment grounds. Fortunately, S. 575 is an entirely sensible, measured response to the considerable controversy that has arisen since interchange fee language was hastily folded into what became known as the Dodd-Frank legislation. Senator Tester’s bill would provide a prudent “time-out” from the rushed rulemaking process to afford thorough study (involving several regulatory authorities) of many aspects surrounding debit interchange transactions, including economic costs, privacy, and marketplace health.
S. 575 would provide the kind of guidance Congress should have had available to it prior to consideration of the Dodd-Frank legislation. Now that sweeping interchange rules with questionable viability loom large over our still fragile economy, passage of Senator Tester’s bill or its equivalent language is all the more imperative. Accordingly, NTU endorses S. 575; roll call votes on the Debit Interchange Fee Study Act will be significantly weighted in NTU’s annual Rating of Congress.