retail news in context, analysis with attitude

Bloomberg reports that US Representative Barney Frank (D-Massachusetts), chairman of the House Financial Services Committee, says that it is not on his agenda this year to pass legislation that would regulate interchange fees associated with the swiping of credit and debit cards.

According to the story, it appears that Frank is accepting the conclusions of a report by the Government Accountability Office (GAO) that while merchants would benefit from lower swipe fees, consumers might not see the same benefits and could “face higher card-use costs if issuers raised other fees or interest rates to compensate.”

Bloomberg notes that “merchants including Wal-Mart Stores Inc. and Target Corp. have asked Congress to reduce the fees, which generated an estimated $48 billion in 2008, according to the National Retail Federation. Payment networks Visa Inc. and MasterCard Inc., which set the rates, and banks that collect the fees have said the system helps merchants by guaranteeing payment and simplifying record-keeping.”
KC's View:
It sounds almost as if Congress wants to protect the merchants from themselves...

It has long been argued here that if reduced interchange fees did not result in lower consumer prices, then retailers would essentially be shooting themselves in the foot, losing a great deal of credibility with shoppers. It also has been argued here that this is unlikely to happen, because certain highly price-driven retailers would use the reduction to lower prices and be extremely visible about it, and in fact market forces likely would compel the competition to do the same.

On the other hand, I guess Congress is unwilling to do anything that might be perceived as not in the consumer’s best interests...since the consumer is the voter. But I’m not sure I agree with the conclusion.