Cash and checks are just so 20th century. Even credit cards aren't as popular among shoppers as they were. For a variety of reasons — convenience, accountability, security — shoppers are increasingly using debit cards to make their purchases. That's a good thing for the banks that issue the cards. For the merchants, not so much — the fee they incur for accepting debit cards has risen sharply in recent years. Consumers pay too, as merchants raise their prices to cover those fees.
Now, Congress is debating whether to put those "interchange" fees under Washington's control. During last month's debate over a financial regulatory reform bill (S 3217), the Senate voted 64 to 33 in favor of an amendment by Sen. Richard Durbin (D-Ill.) to have the Federal Reserve regulate interchange fees for debit and stored-value cards (e.g., prepaid Visa cards). Specifically, the bill said the fees would have to be "reasonable and proportional to the actual cost incurred by the issuer or payment card network with respect to the transaction."
The cost of processing electronic transactions has declined over the years, but the fees charged by MasterCard and Visa for debit-card transactions has not. In fact, proponents of Durbin's amendment say that the charge has increased sharply for certain types of merchants and certain types of cards. Banks, credit unions and card issuers counter that the service they provide merchants involves more than just transferring money from a shopper's checking account. If interchange fees are cut by the Fed, they say, consumers will face higher annual fees and less generous rewards programs.