Credit card companies-who are aligned with credit unions on the interchange fee issue-have enlisted state treasurers who say that cutting interchange fees would limit card issuers' abilities to give states access to prepaid cards to distribute benefits at little or no cost.
"The cost savings achieved as a result of moving from check to electronic distribution of benefits to states and their taxpayers," Nebraska State Treasurer Shane Osborn wrote the House Financial Services Committee last week.
He said the interchange amendment in the Senate version of the regulatory overhaul bill would "drastically alter this equation."
Card issuers use the revenues from interchange fees to subsidize providing prepaid cards for little or no costs to state governments. Osborn noted that it costs 60 cents to print and mail each check while reloading prepaid cards costs only 1.5 cents.
The amendment authorizes the Federal Reserve to ensure that debit card fees are "reasonable and proportional," in relation to processing costs. It excludes credit unions and community banks with assets of less than $10 billion. It also allows merchants to set a minimum or maximum amount for each transaction and let them offer additional discounts for using a certain type of card or cash.
The amendment was included in the Senate version of regulatory overhaul but not the House version. A House-Senate conference committee will meet later this month to reconcile the two versions of the bill. The Obama administration hasn't taken a position on the interchange amendment.