I blogged on May 16 that I had some doubts that price controls on debit card interchange fees would really end up benefitting consumers. The incidence of these fees, I thought, likely fell on retailers rather than consumers, so legislation curbing the fees would benefit retailers rather than consumers. “Should be a good subject for some economics PhD candidates a few years from now,” I concluded.
It looks like I won’t need to wait, however, as GMU’s Todd Zywicki has unloaded with a paper making a full-throated defense of interchange fees and foretelling all sorts of gloom and doom if regulations are imposed (“consequence of interchange fee legislation, as Australia’s experiment with such regulation demonstrates, would be reduced access to credit, higher interest rates for consumers, and the return of the much-loathed annual fee for credit cards”). I haven’t read the paper beyond the abstract, which strikes me as almost certainly over the top, but it’s a reminder that there’s often more to be said on these issues than seems obvious at first glance.