Syndicated column: Big box retailers are winners in credit card controls, not consumers
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. This is why a recurring effort to intervene in the credit card processing market is finding more support in the new Congress than it did in the previous one.
Interchange fees are charged by payment networks, such as Visa or MasterCard, whenever you use a credit card. Collected fees go to both the credit card processing service and the card issuer. Card issuers must maintain and improve payment networks, protect data, combat fraud and bear the risk of debtor default. Fees help cover all of this.
Some merchants who enjoy the benefits that come with accepting credit cards as payment - attracting customers who prefer this convenience - have decided they don't like to pay the cost. So as special interests often do, they've turned to Washington to intervene. They and their advocates claim this will benefit the public, since their savings would be passed on to consumers through lower prices.
That's how we got the Durbin Amendment, part of the 2010 Dodd-Frank Act. It capped fees that debit cards could charge. Since then, Sen. Dick Durbin has wanted to expand the idea to credit cards. So far, that hasn't happened.
Enter the Credit Card Competition Act, which Durbin sponsors. It's an attempt to reduce credit-card fees by using a slightly different route: Rather than a straight-up price control, it would amend the Electronic Fund Transfer Act to compel the Federal Reserve to require banks add at least one additional payment network for their cards. Proponents - including a few Republicans, such as freshman Ohio senator and populist conservative J.D. Vance - claim the added competition requirement will lead to lower costs for merchants and ultimately consumers.
Yet there is little reason to believe this, and good reason to fear harmful unintended consequences. We've already seen it play out with debit cards. After the Durbin Amendment was passed, a study from the Federal Reserve Bank of Richmond found almost none of the savings were passed on to consumers despite a $145 billion reduction in fees paid by retailers.
The Durbin Amendment not only failed to help customers but appears to have hurt them. It resulted in the widespread elimination of debit-card rewards programs and fewer banks offering free checking accounts. The ranks of the unbanked increased by 1 million. That is likely to happen again if more credit-card central planning is adopted.
The effort is primarily being pushed by Walmart and Target, who stand to gain billions. This government-induced increase in big-box profits would come by reducing banks' revenue and in turn removing some consumers' preferred card networks - limiting competitive differences among rewards programs.
As explained by The Points Guy, a popular website on credit card and travel perks, "If enacted, this could dramatically change the rewards ecosystem. It could affect your ability to collect (and redeem) points and miles toward travel or earn cash back that can offset some of your everyday spending."
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