The Federal Reserve’s proposal that was released yesterday on interchange fees is one of the worst economic policies in recent years…and that’s saying a great deal. Only weeks after the Fed released its own study showing that Americans increasingly see debit cards as a preferable way of buying goods and services, the Fed has proposed new rules that will make it harder for these cards to continue to be used. With an economy that depends heavily on consumer spending, it makes no sense to put new policies in place that will make that harder and more expensive.
What’s wrong with the Fed’s proposal? Let me list the ways: price controls, reduced payment options, stifled innovation, diminished payment efficiencies for retailers, and a negative impact on consumer spending to list just a few. The change will likely force banks to charge consumers more for using their debit cards and put additional pricing pressure on small businesses just as many are starting to think about hiring and expanding.
Ordinarily, groups like the Roundtable would thoughtfully compile comments over 4-6 weeks before sending to the Fed. We will still do that.
But, today I sent a letter immediately to the entire Board of Governors expressing my disappointment. The Fed should take the inevitable criticism of their proposal into account and consider the alternatives that will be offered during the comment period. Without a significant change by the Fed, this proposal will do real damage to the economy.
Find a copy of my letter here.