With the announcement of the final debitinterchange rules under the Durbin Amendment, we close the firstchapter on debit pricing regulation. When the Durbin Amendment wasintroduced last year, it took the industry by surprise. But was itreally the first chapter in pricing regulation?
In retrospect, the opening chapter was probably the CARD Act in2009. While it did not address the lightning rod issue ofinterchange, the Act (and its subsequent rules) did regulatepermissible fees and fee levels for credit cards. Granted, thoseinterventions were seen as pro-consumer and as addressing marketabuses. But they changed the business models of many issuers.
With the advent of debit interchange regulation, a broaderintervention affecting the business models of all stakeholders hasoccurred. Adam Smith and his invisible hand of the market have beenforcibly retired. And as I have recently commented, the ongoingsaga of interchange regulation in Australia suggests that this willnot be the final pricing regulatory chapter either. As theregulators around the table commented yesterday, these rules willbe unpredictable in their outcomes, and will warrant ongoingmonitoring and probably amendment. Ironically, rather than addingcertainty into pricing for all stakeholders, this process is likelyto inject uncertainty regarding future regulation. “Capped” doesnot necessarily mean “final.”