Battle over debit-, credit-card fees

'When two elephants fight, the grass gets trampled," goes the African proverb. The same can be said for the epic battle between banks and retailers over interchange fees - what retailers pay to accept credit and debit cards for payment. This battle has resulted in harm to consumers, community banks, and mom-and-pop retailers as Congress injected itself into the fight.

Fortunately, this battle is finally drawing to a close. Last year the payments and retail industries resolved their differences through the court system, negotiating a $7.25 billion settlement to their dispute. All merchants - large and small - are entitled to a sizable sum from this settlement if they accepted credit or debit cards over the last seven years.

Two years ago, retailers lobbied Congress to impose price controls on interchange fees - promising to pass any resulting savings along to their customers in the form of lower prices. The result was the "Durbin Amendment," poorly designed and shoehorned into the federal Dodd-Frank Act without any thoughtful deliberation.

Now, 18 months after the government's intervention into a functioning market, consumers are not seeing the promised lower prices, or discounts for paying with debit. To the contrary, some retailers may start charging "checkout fees" for those paying with credit - a practice some Pennsylvania lawmakers would like to ban.

Moreover, consumers have seen free checking disappear, as banks that issue debit cards lost $8 billion from the Durbin Amendment - revenue that previously funded debit-card programs. A recent survey by Bankrate.com found that 39 percent of noninterest bank checking accounts are now free, down from the peak of 76 percent.

Our community banks - which were supposed to have been exempted from the fallout from Durbin price controls - are beginning to see their interchange revenue drop as well. A recent report by the Federal Reserve shows the first signs of harm to even our smallest community institutions - proving that the blunt instrument of government price controls will hit all involved in the marketplace.

Even smaller retailers - the very entities Durbin claimed to help - are paying more now. Before government intervention, all retailers paid less than 1 percent per debit transaction. But today, mom-and-pop shops, which sell everyday items like a cup of coffee or a turkey sandwich, are paying the much higher price-controlled amount - a flat 23 to 25 cents, compared with what used to be a few pennies - while megaretailers pay a much lower price-controlled amount for selling a flat screen TV.

Retailers won an $8 billion windfall from lobbying Congress, and they just agreed to a $7 billion-plus settlement from the card industry. Enough is enough.