Some states disagree with the federal government on one aspect of financial reform that consumers and business may care quite a bit about: debit card interchange fee limits. Unlike many of the regulatory changes the Senate's bill calls for that affect mostly Wall Street, this one would have a direct impact on average Americans and Main Street companies. The legislation calls for interchange fees to be lowered to an amount closer to what transactions actually cost banks. It turns out that some states aren't crazy about the idea, according to the Washington Post.
The Senate passed this rule because it didn't want businesses being forced to pay higher fees than it believes are fair. In reality, however, this will just change the way banks charge for debit cards, and encourage them to force consumers to pay more instead. We saw this kind of thing happen after the credit card regulation bill passed in 2009. So either way, someone will end up paying -- whether businesses or consumers. Banks aren't just going to shrug if this revenue disappears.
But why are states bothered by this provision? It isn't obvious how it affects them. The Post explains that transfer payments sometimes benefit from interchange fees:
Card issuers typically provide prepaid cards to governments for little or no cost, relying on interchange fees to fund the program. States, in turn, save money on printing and mailing checks and the labor costs of processing and managing the accounts.
Those cards can sometimes take the form of unemployment payments, child support, and even state employee paychecks, according to the Post. If interchange fees are lowered, state and local governments will be forced to make up the difference. This will either place an additional burden on taxpayers or slightly lower the amounts that the governments can afford to provide on these cards.
As mentioned, someone must ultimately pay. States just don't want to have the cost fall on their shoulders. They prefer to have businesses pay interchange rather than add greater expense to their budgets.
The question, then, is who should pay for these costs -- the states that order and distribute these cards or the vendors that choose to accept them for payment? The Senate would apparently prefer that the states pay. And ultimately, that means this cost would be transferred to consumers for personal debit cards as well.