Credit cards, midterms and swipe fees
Credit card companies poised to celebrate?
As the fingers typing this speed–okay, trudge–across the keyboard, the results of Tuesday’s midterms are still dribbling in. However, the key outcomes are already certain–Republican candidates have made enormous gains by winning the House, but have just fallen short of giving them a Senate majority.
Already, some media are speculating about what this will mean for the President’s financial and consumer protection reforms. Bloomberg, for example, is saying that it’s unlikely that–without either the Senate or the White House–the G.O.P. is going to be able to repeal the Credit CARD Act of 2009. However, it may be able to relax credit card regulation through the influence it should have over the Federal Reserve and the other regulators that actually write the rules that govern credit card companies.
And Tuesday, anticipating a Republican victory, one specialist trade publication, Collections and Credit Risk, ran a piece under the headline “Republican Victories Could Give Card Industry A Breather, Analysts Say.”
Credit card regulation that is most feared
There are two main regulatory proposals that credit card companies most fear. First, is the Consumer Financial Protection Bureau. This is seen by critics as a loose cannon that has too much power and too little accountability. Supporters say that it needs to be agile and powerful in order to quickly close the loopholes in legislation that lawyers working for card issuers are so adept at opening.
The bureau is currently being set up by Elizabeth Warren, a Harvard law professor and passionate advocate for consumer rights, whom, most believe, President Obama would like to appoint its first director. She is loathed by the right with as much passion as she is loved by the left, and the Senate seats lost by Democrats during the midterms are likely to make her confirmation–which would require 60 votes–much less likely.
Credit card regulation of swipe fees unlikely
The other regulatory proposal that credit card companies hate is the suggestion that “swipe fees” (also known as “interchange fees”) should be further controlled. These are the cut–usually one to two percent–of the transaction value that merchants must pay to the issuing bank or credit union every time a card is swiped. The money is actually collected by the payments networks–American Express, Discover, MasterCard and Visa.
The Durbin Amendment to this summer’s financial services reform legislation requires that, from July 2011, swipe fees on debit and credit card use should be “reasonable and proportional.” However, Keefe, Bruyette & Woods, a Wall Street equities firm, is now predicting that this regulation could be “tweaked” by a new Republican majority. Meanwhile, the prospect of further reform of credit card interchange fees must surely have receded considerably.
Credit card use and you
How you view all this is likely to depend on two things–your politics and your credit card use. Any loosening of regulation is likely to benefit those who are never late with payments and who pay their balances in full every month. And it is likely to penalize those who are not in those happy positions.
A full reversal of recent reforms, which seems unlikely at the moment, could see the former group (they’re widely known as “deadbeats” within the industry because they generate costs but no revenue except swipe fees) have their credit card rewards programs protected or enhanced, and any annual fees they pay reduced or eliminated. That’s because credit card companies could switch their revenue streams back to higher penalty fees raised from the latter group.
Your politics is likely to determine whether you see that as an eminently fair way of punishing the feckless and rewarding the virtuous, or a transfer of wealth from the haves to the have-nots.
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