Central planning, never out of fashion on the left, is now more popular than ever on the right thanks to the GOP’s populist takeover. Therefore, the repeated attempt to intervene in the credit card processing market finds greater support in the fresh Congress than in the previous one.
Interchange fees are charged by payment networks such as Visa and Mastercard every time you employ a credit card. The fees collected go to both the credit card service and the card issuer. Card issuers must maintain and improve payment networks, protect data, fight fraud and bear the risk of debtor insolvency. Fees support cover all this.
Some merchants who benefit from accepting credit cards as a means of payment – namely attracting customers who prefer this convenience – have decided they do not want to incur these costs. As is often the case with special interests, they asked Washington to intervene on their behalf. Of course, they and their supporters claim that this will benefit society because their savings will supposedly be passed on to consumers in the form of lower prices.
This is how we got the Durbin Amendment, part of the 2010 Dodd-Frank Act. This price control measure confined the fees debit cards could charge. Since then, Senator Dick Durbin of Illinois has wanted to expand the idea to credit cards. So far this has not happened.
Enter the Credit Card Competition Act sponsored by Senator Durbin. It’s an attempt to lower credit card fees in a slightly different way: Instead of directly controlling prices, it would amend the Electronic Funds Transfer Act to force the Federal Reserve to require banks to add at least one additional payment network to their payments. cards. Supporters – including a handful of Republicans, such as Ohio’s freshman senator and populist conservative J.D. Vance – argue that the additional competition requirement will lead to lower costs for sellers and, ultimately, consumers.
However, there is no reason to believe this, and very good reason to fear that harmful, unintended consequences will arise. This is not idle speculation; We’ve already seen this happen with debit cards. After the Durbin Amendment was passed, a study by the Federal Reserve Bank of Richmond found that almost no savings were passed on to consumers despite retailers cutting fees by $145 billion.
The Durbin Amendment did not support customers and appears to have harmed them. This has led to the widespread elimination of debit card rewards programs and fewer banks offering free checking accounts. The number of people without a bank account increased by approximately 1 million people. Some of this is likely to happen again if more central planning for credit cards is adopted.
No wonder it’s not just about petite businesses. These efforts are mainly supported by Walmart and Target, which stand to gain billions of dollars in additional revenue. Higher revenues for huge box stores are not a problem in themselves, as long as they are the result of better customer service. However, this government-induced enhance in vast corporate profits would occur as a result of reduced bank revenues and the consequent removal of card networks favored by some consumers, further reducing competitive differences between card products and popular credit card rewards programs.
As explained by The Points Guy, a popular website devoted to consumer credit cards and travel benefits, “if this bill becomes law, it could radically change the rewards ecosystem. This may impact your ability to earn (and redeem) points and miles for travel or earning money on your back, which could offset some of your everyday expenses.”
This is also an example of the outrage that theater politicians inflict on us. Think how strange it is that Vance agreed to Target’s offer after declaring he would no longer shop there due to the company’s revival program. While it’s fun to expose inconsistencies on the part of legislators, what worries me is that fewer and fewer people are upholding this economic basis:
Central planning fails because it would require the mind of God to succeed, and yet planners are human. Even if they were not susceptible to corruption, they would never obtain enough information to outperform the market, which consists of countless pieces of detailed knowledge of consumers and sellers signaled through prices. Interfering with the market process, whether through direct or indirect price control, inevitably produces unintended consequences.
Left to its own devices, the market has found a balance between card issuers and merchants. Politicians who interfere to favor one side or the other will, as usual, cause unpleasant surprises.
Veronique de Rugy is the George Gibbs Chair in Political Economy and a Senior Research Fellow at the Mercatus Center at George Mason University. To learn more about Veronique de Rugy and read articles by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.twórcy.com.
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