Pay no attention to that graph behind the curtain

Faced with the prospect of having debit-card interchange rates regulated — and, under the current proposal, regulated downward — by the Federal Reserve, the American Bankers Association is arguing that the rates aren’t that high [pdf], and that the numbers only look that way because of the sheer volume of transactions.

Adam Levitin at Credit Slips says otherwise:

The Nilson Report, the ABA’s source, does not break down interchange into credit and debit. For MasterCard and Visa and Discover, it just reports a blended number.

The blending of debit and credit interchange masks what’s really been going on. Both debit and credit interchange rates have risen pretty significantly since 2000. But the percentage of payment card transactions and dollar volume performed on debit has also increased significantly over this time period … and debit has lower interchange rates than credit. So even though debit and credit interchange rates are both rising, the average rate has been more or less steady because of the increase in debit’s market share.

And that average rate is the one the bankers want you to look at. Just another day in the lobby, says Levitin:

Since 2005, we’ve seen the phantom $400 bankruptcy tax, the end of consumer credit claim with the CARD Act, the 200[-basis-point] (and then 150bp) mortgage rate increase from cramdown, the 160 bp increase in cost of credit from the CFPB, and innumerable declarations that free checking will go the way of the dodo bird. On virtually every consumer finance issue, we’re bombarded by misleading or simply fake statistics out of bank lobbying organizations. I’m starting to have a unwanted (and unpaid) second career just in debunking them.

I admit to having my doubts about the Bureau of Consumer Financial Protection, but with foxes loudly asserting their rights to maintain the henhouse, I figure we can use all the terriers we can get.

1 comment

  1. Baby M »

    30 March 2011 · 9:18 am

    Terriers? More like lapdogs. The Obama administration will be just as hard on them as it was on AIG and General Motors and all the other bailout beneficiaries.

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