We woke up this morning and the sun wasshining, birds singing, and summer flowers were in full bloom.What’s different is that many of the fundamental cost and pricingcomponents of consumer payment types in the United States are nowpublicly regulated. By this we mean checks, ACH, credit cards, andnow, debit cards. It’s too early to comment on specific elements ofthe rules as we are digesting the almost 400 pages of documentationthe Fed released yesterday. But if one bellwether of goodlegislation is that no one constituent is entirely happy; then bythat criterion, it was a job well done.
It is extraordinary that in just a few short years, an entireindustry has had to readjust its core business models in responseto such an intense and highly invasive round of new regulations.This oversight now includes the Card Act, which essentially acts todefine allowable pricing models for credit cards. It also includesthe Overdraft Protection Act that shifted control over debit cardexception fees to consumers, the Durbin Amendment with its debitcard interchange and network rules, and in just a few weeks, thenew Consumer Protection Bureau will officially open forbusiness.
The examination of the payments industry has been painful to saythe least. No industry can withstand this level of scrutiny andcome out looking fresh at the end of the day. As Governor Raskinpointed out in her comments yesterday, there are reasons all ofthis legislation came about, but that’s just part of the story. Theother part is that there is now no turning back. With thepublication of Regulation II, Debit Card Interchange Fees andRouting rules, there is no consumer payment form that the Federalgovernment does not oversee in one fashion or another. The paymentsindustry itself is now a public entity (in much the same wayutilities are both public and private), and the legislative branchof government will play a primary role in how it is reshaped overthe course of the next decade.
Governor Duke, in her opinion as to why she would not vote infavor of the final rules, brought into focus the main problem withthese regulations -and that is that it will be difficult at best,to protect the small financial institution, poorer consumer, and(we would add), small business, from suffering the most long termdamage. Simply monitoring interchange fees or requiring thatconsumers who are given GPR cards have access to one free ATMwithdrawal does little to mitigate what we believe will be theshift in expense and cost towards the lower end of themarket.
In the meantime, however, the devil is indeed in the details andwe would expect that over the course of the next 12-18 months,there will be some corrections that come out of this verycomplicated piece of legislation as implementation plans generate”gotcha” finds buried within them. And there is always a judicialwild card, even though the leading suit filed by TCF Financial hasnot yet been successful in putting a halt to the implementation ofthe Durbin Amendment. Our reading of the industry indicates that itis weary of the fight and ready to go on with the importantbusiness of the day -which is getting our economy back to a healthystate. Let’s hope the spotlight on the payments industry has beenturned off and the chairs have been put up – for now.