Senator Durbin's original Interchange amendment, inserted into the financial reform bill working its way through Congress now, would limit the amount of debit-card Interchange fees that Visa Inc. and MasterCard Inc. charge banks to what's considered "reasonable and proportional" to the processing costs involved. These Interchange fees are then passed on to merchants when they accept card payments. But as Durbin learns more about the payment system intricacies, his Interchange plan is developing on the fly and becoming more complicated.

Durbin now wants to keep Interchange 'as is' for debit cards used by the government by carving out an exemption to his own amendment. As reported in Digital Transactions, Durbin said he would write language to exempt transactions on "government cards so they would not be affected.”

At the same time Durbin wants to use the power of government to set lower Interchange when the government accepts cards for payment. A Treasury Department official reported that the Treasury accepted $8.6 billion in card transactions last year on behalf of 228 agencies, resulting in $116 million in Interchange fees paid by the government. (Is that really a Real Rate of only 1.35%?) Durbin wants lower costs carved out for the government while completely ignoring the benefits that save taxpayers money made possible by the bank's income from these Interchange fees.

In review, according to Durbin, so far he wants community banks to keep existing Interchange fees on debit cards they issue and allow mega banks to earn the existing Interchange fees only when the debit cards they issue are used by government agencies. However, he demands lower Interchange when the government accepts card payments. What will Durbin do if a government debit card is used to make a payment to a government agency? Create yet another amendment with more government rules and regulations of course. In my view it just demonstrates the lack of understanding of the big picture of how the payment system works to benefit all parties and why "government solutions" are scary.

I am still not convinced that any of this added regulation and complexity aids my small business clients. I remain concerned that national big box retailers are using small businesses in this Interchange debate and my gut instinct says that negotiations will favor the largest corporations, putting smaller merchants at a greater disadvantage than they are today.