Fed Debit Card Fee Rule

Rep. Frank critical of Fed debit card fee rule | Reuters

The credit card market reminds me of our healthcare markets. The true cost of the service is hidden from the buyer so there are no mechanisms to allow the market to work toward efficiency and both are captured by the current players, with everyone trying to wring as much profit from the system as possible.

The healthcare market has many incentives to increase costs but few to reduce them. The employer pays for the insurance and the insurance company pays for the health care so the buyer will use healthcare whether they need it or not and they won't look for the best deal. The provider doesn't have to worry about cutting operating costs to be competitive with other providers and the insurance company is just a parasite in the system with their profits adding to the overall cost.

The insurance companies and health care providers battle over the profits of the system with both lobbying for regulatory changes that help funnel more of those profits into their respective pockets.

If you had to pay cash for that appendectomy, you'd be shopping around for the best price, health providers would be running their ship like a real business and the insurance company employees would be working in some other industry. The country's overall health costs would be lower. The market would be efficient. Of course people who couldn't afford health care would be dying in the streets so a free market is not a viable answer in this case BUT,.. the current system with it's misdirected encentives is not ever going to reduce costs by any significant amount.

The true cost of credit card purchases are also hidden from the user since most people do not have any sense of the true cost of the interest fees they pay, the cards allow/encourage over spending which raises prices by increasing demand accross the board, and all the processing fees are hidden in the cost of the item.

The banks and Visa/Mastercard (again the banks) have the markets locked up preventing efficiency and they own enough members of our government to prevent any real change in the system. The profits keep rolling in.

In both industries, the market is far from free, the total costs are more than necessary hurtiong consumers and the profits of those at the top are excessive.

Of course the extra costs of these systems, the healthcare provider, insurance companies and bank profits, could be returned to the economy but for some reason our leaders think think rich people shouldn't have to pay more taxes.

Here are a few links about credit card processing:

Interchange fees

Visa, Mastercard, and the FED

Interchange fees


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