If you want to understand inside the Beltway politics, proceed immediately to a superb article by Zach Carter and Ryan Grim at Huffington Post, “The Swipe Fee War”. It is a meticulously reported piece over the number one fight in the nation’s capital, which contrary to headlines, is not the budget battle but proposed regulations over debit card fees, otherwise known as “interchange” fees. As Felix Salmon, Katie Porter, and Adam Levitin have written, the reason this battle is so hard fought is that it pits two big spending constituencies against each other: banks versus retailers, or as one Senator broke it down further:
The big greedy bastards against the big greedy bastards; the big greedy bastards against the little greedy bastards; and some cases even the other little greedy bastards against the other little greedy bastards
Debit card charges are as close as you get to pure profit in banking once you get the system in place. The service runs over existing charge card equipment and infrastructure on the merchant end, and is integrated into existing bank balance reporting on the consumer end. For retailers, which are often low margin businesses, the various bank payment service charges are a very large cost. And the only serious study done on the impact of card charges (both credit and debit) on consumers concluded that the average household pays $230 a year. This is a significant hidden tax on lower-income households.
The Carter story is full of juicy vignettes: Bernanke lying badly on behalf of banks; WalMart fabricating alarmist Fed statistics; various Congressmen handwringing as to which group they should sell themselves to align with; the repeated flip flops of the mercenary NAACP. If we had sensible anti-trust precedents, this abuse of a oligopoly powers could be handled there, but the successful efforts of law and economics movement to indoctrinate judges have made that a non-starter, leaving the legislature as the best avenue for containing financial services industry rent-seeking. The ugly spectacle of this much time and effort being spent by various pigs at the trough as to how they whack up the economic pie, as opposed to create new products and services, is compelling proof of the need to regulate financial services firms as utilities. If these swipe card rules go through, it would be a welcome small step in that direction.