Is the "Debit Card Rule" a good Idea?

In December of 2010 The Federal Reserve Board issued a press release that proposed balancing the cost of debit card transactions paid by retailers with costs required of card issuers. This is evident in the following excerpt from that press release:

 "The proposed new Regulation II, Debit-Card Interchange Fees and Routing, would establish standards for determining whether a debit card interchange fee received by a card issuer is reasonable and proportional to the cost incurred by the issuer for the transaction."

In response to this proposed rule, the Electronic Payment Coalition initiated a campaign to delay the implementation of this rule. The reasoning of the coalition is costs would be incurred by small financial institutions and debit card users to their disadvantage. This is because a bank or credit union may be considered a card issuer according to Bankers Online in reference to the Truth in Lending Act.

A question to ask when considering this issue is whether or not the motive of the rule is to establish a fairer or more balanced cost structure, or whether it is motivated by the intention to simply benefit retailers with lower costs.

Since the Federal Reserve Board is an economic regulator, the economic affect of this rule should be considered. If costs go up for small financial institutions and debit card users via higher fees, that could impact consumer spending. Moreover, if those financial institutions are required to initiate checking account and other fees to pay for debit card transactions costs, they may have less to spend in the economy. 

Lower consumer spending also impacts retailers so the reasoning for the rule may be circular.  In light of this it would seem the economic impact of the rule should be studied carefully,