Diary

Congress Should Not Buy This Bill of Goods on Credit Card Fees

Congress should implement European style price caps on credit card interchange fees that will not benefit consumers
Congress should implement European style price caps on credit card interchange fees that will not benefit consumers

Most in politics can understand it when those firmly on the progressive side make the argument that we in America need to enact public policy more like that of Europe. But when one American industry is locked in a battle with another, and seeks to use the force of the federal government to intervene in that fight, Members of Congress should know not to buy that bill of goods when one industry wants the federal government inflicted on another just to increase their bottom line at the expense of the other. Such is the case with the latest push by the retail lobby to enact European type price controls on the interchange fees charges to retailers for accepting debit and credit cards from their customers.

Citing the issue of security in the use of credit and debit cards by consumers, which is a valid concern given the recent massive breaches of customer credit/debit cards data by major retailers such as Home Depot, Target, Michael’s and others, the major retailers want more regulation of the credit and debit card industry in this area. But in promoting more federal government regulation in card security, are retailers wanting the door opened to further regulation and price controls on the credit card fees? If they are exploiting the security issue to bring about more regulation of the credit/debit cards and the interchange fees, are retailers exploiting a problem that they have created by so irresponsibly handling the credit/debit card data of millions of their customers?

They want pin numbers on all the cards, which will not stop the major breaches that have occurred, and they also want further price controls on the interchange fees. The retail lobby demands and received, when Congress passed the Dodd-Frank financial law, a provision to cap those interchange fees charged to retailers by credit cards companies and banks. They said this was necessary because it would protect consumers, but yet it has lead to lower prices by only 1.2 percent of retailers while 21.6 percent have raised their prices. While it reduced revenues for the providers of credit and debit cards, almost none of the saving have gone to consumers. The retail lobby sold Congress a bill of goods, who in turn believed they were protecting consumers when they bought it and enacted the price caps in Dodd-Frank.

We are told the interchange fees are a drag on consumer spending, according to Mallory Duncan, chairman of the Merchants Payment Coalition, a group that represents the retail industry. The interchange fees for most purchases are generally less than two percent purchases; a small amount for retailers to enjoy billions in sales revenues from the ability of customers to conveniently access their money and credit using by swiping their cards at the cash register. Retailers benefit from five times the value paid in fees, and purchases by customers using their cards are two to four times of those by customers paying cash.

So the interchange fees are really a problem, or so the retail lobby wants us to believe? There is no problem here to be solved, and further limits on the interchange fees will not benefit consumers and only increase the profits of retailers, without retailers having to sell better products or provider better services or benefits to consumers. Congress should see this effort for exactly what is it, the retail lobby wanting to improve their profits at the expense of the credit and debit card providers, who perform their services, which are extremely beneficial and valuable for retailers, for a very low fee already.

If the case for more control over interchange fees wasn’t ludicrous enough already, the retail lobby trotted out former Massachusetts Attorney General Martha Coakley to lead their effort. Coakley is known for perhaps most epic failure of any politician lately, for losing two state-wide races for Senator and Governor, as a Democrat, in one of the most blue states in the country. Former Massachusetts [mc_name name=’Sen. Tim Scott (R-SC)’ chamber=’senate’ mcid=’S001184′ ] Brown defeated Coakley in 2010, while the former attorney general of that state lost in 2014 as the Democrat’s candidate for governor to current Governor Charlie Baker.

Republicans and Democrats in Congress should stay out of this fight between retailers and the banks and credit card companies, and let the free market decide interchange fees. If the fees are too high, retailers don’t have to accept those particular cards. For example, many retailers, in the past, haven’t accepted American Express cards when historically, that credit card provider had charged them higher interchange fees than Visa and MasterCard. That is the real solution, letting the free market decide, rather than having the federal government decide the issue in favor of one industry and at the expense of another.