Changing Interchange Automatically is Not a Good Idea

In the latest Federal Reserve (issued Oct. 25) proposed rule on debit interchange, the big news was that banks with more than $10 billion in assets would pay a lower interchange fee when their customers use a debit card. More importantly, the proposal would also give the Fed the power to change the interchange cap every other year based on data from bank surveys on transaction costs.  

However, the Fed wants to make this change without going through the standard procedure of issuing a proposed rule, taking public comments, and issuing a final rule. Instead, they would just set the debit interchange rate behind closed doors.  

Maybe this is their attempt to make up for the fact that this is the first time the board has revisited the fee cap since it was initiated in 2011. 

Whatever the reason, this is not the hallmark of good public policy.  

As the payments system evolves with new technology and business models, relying solely on transaction cost surveys may miss important information that public comments could bring to light.  
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We know that merchants, large banks, and other payments providers are affected by changes in interchange rates, but so are consumers. The effect on consumers is downstream from the bottom line changes that banks and merchants might see. But even small banks will feel downward pressure on interchange from revised caps. Additionally, consumers could see their payments options change if the sustainability of traditional products declines.  

The Board should adhere to the Administrative Procedures Act’s requirements for notice and public comment before making any additional modifications to the interchange fee cap, so that all stakeholders have a chance to review and weigh in on this important topic.