business news in context, analysis with attitude

The Wall Street Journal reports that a US District Court Judge has ruled that the Federal Reserve exceeded its authority when it set a 24 cent-per-transaction cap on debit card usage, Including the improper use of data that made the cap too high.

According to the story, "The ruling could force the Fed to slash fees banks collect from merchants when they swipe customers' debit cards, further crimping a once-lucrative profit center for banks and companies like Visa Inc. and MasterCard Inc. The Fed's rule capped fees at 21 cents per transaction, much higher than the initial 12 cent cap it proposed, a fact noted by the judge. Before the rule went into effect, banks charged an average of 44 cents per transaction."

The story goes on: "In a strongly worded opinion, U.S. District Judge Richard Leon in Washington said the Fed rule amounted to an 'utterly indefensible' interpretation of the 2010 Dodd-Frank financial law. The Fed rule, he said, 'runs completely afoul of the text, design and purpose' of a Dodd-Frank amendment authored by Sen. Richard Durbin, (D., Ill.) to limit the fees."

The banks and credit card companies said they were evaluating the decision.

The Associated Press reports that "the Consumer Bankers Association, which represents large U.S. banks and regional banks, said the new ruling 'will create even more chaos for consumers and small banks.' And it quoted Richard Hunt, CEO of the association, as saying, “Congress ought to save families from this uncertainty by repealing this government mandated price-fixing. We certainly hope retailers return to their free-market principles as they did when opposing the proposed government ban on big gulp sodas in New York.”
KC's View:
Gee, that's the best this banker came up with? Regulating usurious fees is like not allowing people to drink from gallon-sized containers of soft drinks!

Well, here's the analogy I'd suggest. Maybe, just like NYC forced fast feeders to post calorie counts on menu boards, the federal government could require retailers to post a breakdown at checkout and on receipts of exactly how much of the bill is going to the banks that issued the debit and credit cards. That might have a remarkable impact on shopper behavior. And then maybe the federal government ought to allow Walmart to get into the banking business, something that the financial services industry desperately wants to avoid, and we all know why they spend millions of dollars lobbying to prevent such an occurrence.

The only reason the government has gotten into this problem is because the banks often act with all the integrity of a street corner loan shark, except with better suits and haircuts.