Site for Free Markets and Free People

Thursday, December 08, 2011

Oops! Merchants Now Paying Price of Debit Fee Limits

As part of the Dodd-Frank bill, the government in its infinite wisdom to help merchants and therefore consumers by lowering debit card swipe fees, have done the exact opposite on smaller transactions. You see, merchants used to get discounts for smaller transactions, but with the new limits, banks have eliminated those discounts, which mean a big price increase for them - and therefore the consumer.

Many business owners who sell low-priced goods like coffee and candy bars now are paying higher rates—not lower—when their customers use debit cards for transactions that are less than roughly $10.

That is because credit-card companies used to give merchants discounts on debit-card fees they pay on small transactions. But the Dodd-Frank Act placed an overall cap on the fees, and the banking industry has responded by eliminating the discounts.

Merchants now are trying to offset their higher rates by raising prices, encouraging customers to pay in cash or dropping card payments altogether.

Wow - who would have guessed that government intervention once again screws everything up? (Besides every Republican member of Congress and most of the American public, I mean.)