Senator Dick Durbin Argues that Credit and Debit Card Markets Are a Monopoly and Government Intervention is Required

Businesses around the country, particularly small businesses, are being charged excessive fees for accepting credit cards, according to Senator Dick Durbin of Illinois. He assets that so-called interchange fees are passed onto consumers in the form of higher prices, and as a result consumers are paying the ultimate burden of these so called interchange fees which total $50 billion in the US in 2008.

Visa and MasterCard require an interchange fee of one to three percent of the transaction amount to be paid every time someone uses a debit or credit card. Through arrangements with member banks, these companies then deliver the interchange fees to member banks with approximately 80% of the money winding up in the hands of the 10 largest US banks.

Senator Dick Durbin claims that American consumers and retailers are being nickled and dimed to the benefit of big banks. The current interchange system, according to Durbin, is effectively a hidden tax eating away at those consumers and retailers who have already been left with the burden of bailing out the large banks after 2008.

An open market economy provides that the credit card companies and the banks should be allowed a fair return for facilitating payment (and, perhaps extending credit). It is very clearly demonstrated that consumers spend more money when they have a credit or debit card than they would with cash or with a check, thus leaving most small business no choice but to accept credit card payments.

Nevertheless Durbin asserts that the fees are not fairly and transparently negotiated. Rather, he claims that the terms are currently given to merchants on a “take-it or leave-it basis”. Durbin’s proposed amendments to the Wall Street reform bill, would direct the Federal Reserve to ensure that debit card interchange fees be "reasonable and proportional" to the costs incurred in processing the transaction. The legislation would also strip anti-competitive provisions from Visa and MasterCard's contracts. Durbin asserts that in a normal market following his amendment, banks would compete with one another to win merchant business.

What do you think? Should the Durbin Amendment be passed to lower transaction costs for small businesses with the savings potentially being passed on to consumers? Or, do you feel that the credit card companies and banks get a fair return for the credit card and debit card services that they provide and should not be hampered by the federal government?