« Principal Reduction Mods--Greatly Exaggerated? | Main | Illinois Foreclosures Delayed »

More Bogus Lobbying Numbers from the Banks: Debit Interchange Rates

posted by Adam Levitin


You gotta love the American Bankers Association. These guys just don't stop trying. They're the Hamburgler of the lobbying world. The ABA now has a little piece out now entitled "Merchant Interchange Rates are Steady—Transaction Volumes Are Rising". This piece is incredibly dishonest; they couldn't even get any academic or even hired-gun econosultant to sign on to it. All that's missing is a claim about death panels or al-Qaeda.  

The ABA claims that interchange rates have remained basically static since 2000, and that the real issue is just that merchants are doing more transactions:

Consumers are using their debit cards more and more with each passing year.  Yet the interchange rate that merchants pay when they choose to accept debit cards for payment has remained relatively steady.  True, the total interchange fees paid have risen, but that is because of two important reasons:  (1) the volume of sales transactions has increased – which means greater total sales and profits for merchants; and (2) customers are choosing to increase their use of debit cards as a means of payment and merchants have encouraged them to do so. Simply put, since interchange fees are a relatively small and constant percent of transactions, the rise in total interchange fees paid is a sign of the success of retailers in selling more products, not a sign that merchants are being charged more.  (Emphasis in original.)

The evidence?  This graph, sourced to the Nilson Reports.

Nilson Graph

Here's the slight-of-hand: while the text of the ABA report make very clear that it is referring to debit cards, the graph shows average debit + credit interchange rates (plus network fees, etc.).  The Nilson Report, the ABA's source, does not break down interchange into credit and debit.  For MasterCard and Visa and Discover, it just reports a blended number.  

The blending of debit and credit interchange masks what's really been going on. Both debit and credit interchange rates have risen pretty significantly since 2000. But the percentage of payment card transactions and dollar volume performed on debit has also increased significantly over this time period (see graphs below, data from Nilson Reports), and debit has lower interchange rates than credit. So even though debit and credit interchange rates are both rising, the average rate has been more or less steady because of the increase in debit's market share.

Transactions
Dollars

What's more, the ABA's numbers don't distinguish between PIN and signature debit and also don't account for the networks charging lower interchange fees for types of merchants who are reluctant to take cards (landlords, utilities, e.g.) and higher rates for those who are already locked in.  

The fact that the blended rate has remained constant is little solace to merchants because an ever increasing share of transactions are moving to plastic (especially checks/cash to debit) and the net effect, if unabated, will be a steady uptick in the blended rates.  Maybe that's why the ABA omits the 2009 data, available since March 2010, which shows an uptick in the blended rate.

I wish there were better data that broke down credit and debit interchange (with PIN and signature debit further distinguished), but all it is pretty clear that rates have gone up significantly for credit and debit between 2000 and 2010.  The graph from the NY Times illustrates: 

VISA1web

And this graph from a Merchants Payments Coalition Fast Facts Sheet (sourced to the work of the Fed's debit card interchange maven, Fumiko Hayashi at the KC Fed) shows a pretty dramatic increase in PIN debit interchange:

PIN Debit
In the end, the ABA's claim is beside the point, other than as an example of the level on which they are conducting their lobbying effort.  Even if rates have been steady, they are still too high as an absolute level.  There's no reason they should be much, much higher than anywhere else in the developed world.  

8f858-InternationalCredit

I get really pissed when I see this sort of bogus claim made by lobbyists. It'd be really nice to have a factually driven policy, not policy shaped by dishonest documents like this. There's plenty of room for debate on interchange issues and no need to resort to this kind of fraud.

But it's not the first time we've seen it. Since 2005, we've seen the phantom $400 bankruptcy tax, the end of consumer credit claim with the CARD Act, the 200bp (and then 150bp) mortgage rate increase from cramdown, the 160 bp increase in cost of credit from the CFPB, and innumerable declarations that free checking will go the way of the dodo bird. On virtually every consumer finance issue, we're bombarded by misleading or simply fake statistics out of bank lobbying organizations. I'm starting to have a unwanted (and unpaid) second career just in debunking them. How does the bank lobby continue to have any credibility in Washington? Yes, I know the an$wer. 

Comments

The comments to this entry are closed.

Contributors

Current Guests

Follow Us On Twitter

Like Us on Facebook

  • Like Us on Facebook

    By "Liking" us on Facebook, you will receive excerpts of our posts in your Facebook news feed. (If you change your mind, you can undo it later.) Note that this is different than "Liking" our Facebook page, although a "Like" in either place will get you Credit Slips post on your Facebook news feed.

News Feed

Categories

Bankr-L

  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

OTHER STUFF

Powered by TypePad