WASHINGTON — A former chairman of the President's Council of Economic Advisors under the Clinton Administration likened the proposed cap on debit interchange to “pushing paper mail over email.”
Martin Baily is also a leading economist at the Brookings Institution, a Washington DC think tank. He made his comments at a Washington conference on the Federal Reserve's proposed debit interchange cap sponsored by Payments.com.
Baily told conference attendees that there were three reasons he and other economists had come to oppose the Federal Reserve's pending regulation, including that it is likely to lead more American consumers back to using checks.
“The Durbin Amendment represents a huge step backward for us,” he said, away from economic stability that the Dodd Frank financial reform law was intended to further. “I support Dodd Frank, but I don't support every part of it,” he said.
He quoted Federal Reserve governors over the last five years that had strongly favored moving the payments system away from checks and onto electronic payments. He also noted that the law would likely adversely impact the small merchants that its supporters most wanted to help. According to economic studies, only about 10% of small merchants take debit cards but almost all of them have checking accounts that they are about to start having to pay more money to maintain, he said.