At least, that's how it seemed this morn in the WSJ.  Top headline: Showdown on Fund Taxes, about a proposal to tax carried interest as ordinary income rather than capital gains.  Glom faithful, hearing this issue, will fondly remember our esteemed emeritus Vic Fleischer, recently quoted in the Economist, who wrote about this 3 years ago and counting.     

Inside the WSJ, word of banks "unleash[ing] a last-ditch effort to strip new debit-card restrictions from the proposed financial-overhaul legislation," including debit-card interchange fees.  You may recall that Truth on the Market hosted a credit card symposium this past February.  If you missed that great event, interchange fees are the fees banks charge merchants to process credit or debit cards used by customers. Today George Mason's Mercatus Center hosted a conference titled The Economics and Regulation of Payment Card Interchange Fees. 

The Senate, but not the House, version of the financial overhaul bill addresses debit card interchange fees.  Boiled down, it 1) limits how much banks can charge merchants, and 2) also allows merchants to prefer some kinds of cards (or cash) to others.  On the first issue, I'm uncomfortable with the government getting into limiting fees.  The Journal article has a fascinating few paragraphs about one word in the bill.

The legislation calls for the Fed to determine that the rates are "reasonable and proportional" and that they would cover the "actual incremental cost" of the transaction.

The banks are concerned that the word "incremental" would reflect only the transaction itself, and wouldn't include other costs associated with maintaining a debit-card business, such as fraud prevention and technology expenses.

"The word 'incremental' is an important word that you wouldn't want to see in there. It is certainly troublesome," said a senior executive at a large bank.

Seemingly unaffected institutions are lining up against the rule.  Small banks with less than 10 billion in assets (who are exempt from the legislation) say that government-mandated lower fees for big banks would force them to lower fees, too, in order to stay competitive with merchants.  And state treasurers, who depend on debit cards instead of checks for services like unemployment benefits, worry that banks will charge the state more to offset reduced interchange fees.

On issue #2, however, the legislation strikes me at first blush as right.  Debit card network rules that prevent merchants from offering discounts for using cash, for example, instead of a debit card, seem unfair to me.  Here's how Athens wine merchants work: you get 10% off a case of wine if you pay with cash or a check, 8% if you pay by card.  Because, as they say, the banks charge them 2%.  Tying merchants' hands to prevent them from steering customers to cheaper payment methods or not allowing them to set minimum transaction limits for debit cards just doesn't seem fair--incrementally or otherwise.

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