I understand that it within everyone’s rights and indeed their interests to present their ideas in the most favorable light. Sometimes, however, it is hard not laugh, laughing being emotionally more calming than outrage, at their efforts.

I recently saw a banner advertisement that warned me Congress was going to raise my costs for using payment cards. The implication of this dire warning was that sneaky politicians were going to levy a new tax or fee. My potential outrage turned to the more calming smile when I realized it was banking propaganda.

Congress has proposed legislation that would limit the interchange fees. Interchange fees are the amount paid by the retailer for card processing. Currently these fees can be 2 to 3 percent for credit and 1 to 2 percent for debit transactions. The legislation would lower those fees to 12 cents per transaction.

The banks claim that the only beneficiaries of this harmful rule are retailers, who will take home an additional $14 billion in profits. It almost sounds like the banks really care about you until you realize that it is the $14 billion that concerns them; they are not so much worried that greedy retailers will take $14 billion from your pocket, they are worried that greedy retailers will take $14 billion from their pockets.

I am not sure that retailers would not pass on some of their savings, as retailing is more competitive than banking (or at least customers are more aware of differences in retail prices).

The bankers (actually an outfit called The Electronic Payments Coalition) claim all manner of harm will befall consumers if this were to pass: e.g., account fees, the abolition of reward programs, or the disappearance of cards altogether. Their website attempts to make it sound as if government were going to implement these draconian punishments. It is the banks that are threatening these punishments (I suspect that ultimately they would see 12 cents as better than no cents). Nothing in the legislation tells the banks to do these things, it is just an attempt to bully and threaten consumers.

I am not necessarily arguing in favor of such legislation but discussing the manner in which they present it. Whatever the merits of their case, we should have learned to be careful of the claims of bankers. I am not exempting the Retail Federation from claims of rent-seeking (more plausible as the legislation would change market transactions in a way that benefits them), I just have not seen one of their banner ads.

Perhaps we should all go back to cash. . . or gold.

I have to laugh at that title from a group that received Trillions in government aid. Perhaps the “us” refers not to “we the people” but to “us the bankers.”

6 Responses to “Propaganda”

  1. Gorbachev Says:

    The banks paid for this network decades ago, actually. There’s no reason any of this should cost PERCENTAGES of charges. It’s absurd.

    A flat fee is all that makes sense, and even then, given the cost to maintain these networks and build future ones, 12 cents per transaction still seems a little generous to the banks.

  2. Xamuel Says:

    Highway robbers whine as highway robbery is outlawed. News at 11. I’ve already transferred a good-sized savings account away from one large bank, and, pending lots of annoying paperwork, will transfer my main account away from another. A bank should be like a supermarket, a place which offers a useful product for a reasonable profit; not a government-lobbying, institutional, monopoly-hoarding, rent-seeking, monolithic institution. Time to make these banks small enough to fail.

  3. Default User Says:

    @Gorbachev , Xamuel
    I believe they call the fee for credit cards a “discount fee” (as with credit factoring). Thus, they could claim that it is not a straight transaction fee but a credit discount (retailer receives money now while the card company waits – although I suspect that reality is that the retailer waits as well).

    I do see it hard to justify the fee for debit transactions where there is no factoring and little credit risk.

    Even with future building and anti-fraud activities, I find it hard to believe they need 2 percent to maintain their networks

    I realize that the actual economics of this may be a bit more complicated than it seems; you have the association (Visa, Mastercard, etc.), the card issuer (e.g., Bank of America, Chase), acquiring bank (the institution that holds the retailers account) and the transaction network (which may be independent).

    Foreign transactions are another rip-off: The association (Visa, Mastercard) charges 1 percent exchange fee on foreign currency transactions; this is actually not a bad deal as you get near wholesale rates and pay a lower commission than traveler’s checks or local currency exchange. The issuing banks have taken to adding a 1 or 2 percent fee on top of this. Remember the issuing bank receives the charge in US Dollars (or whatever the home currency is), they have no work to do and no exchange rate risk; this is truly money for nothing. As further grasp they even charge this fee on US Dollar transactions made outside the USA.

    I am always wary of government involvement in pricing or other market activities, the chance for rent-seeking (and other mischief) is too high – it is not like the Retail Federation are babes-in-the-wood, just looking out for the consumer. Part of the problem here may be that we have a closed network that essentially gives some monopoly power (perhaps not pure and complete, but strong).

  4. Linkage is Good for You: Obscure Edition Says:

    […] Default User – “Propaganda” […]

  5. Second Linkfest Says:

    […] Default User: Propaganda […]

  6. opit Says:

    “Part of the problem here may be that we have a closed network that essentially gives some monopoly power ”
    I’ll vote for ‘the problem is’. I’ve seen rather odd links around referring to the British as being H.Q. for that…not to exempt the likes of J.P. Morgan, mind. The Ron Paul gang and progressives online keep coming up with the most unusual stuff on the Fed, Bilderbergers, Council for Foreign Relations, Illuminati, Skull and Bones, etc. currently starts with one of those…previous content having disappeared down Blogger malfunction about the 12th – 14th.

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