Could Congress Cripple the Credit Card Industry?
Posted: Wed May 14, 2008 4:24 pm
Could Congress Cripple the Credit Card Industry?
Proposed Price Controls Could Threaten Consumers and Small Banks
Proposed Price Controls Could Threaten Consumers and Small Banks
Washington, D.C., May 14, 2008—Thursday morning, the U.S. House Judiciary Antitrust Task Force will consider a bill that could have a major impact on the credit card industry. The task force is scheduled to hold a hearing on the Credit Card Fair Fee Act of 2008 (H.R. 5546), introduced two months ago by House Judiciary Committee Chairman John Conyers (D-MI) and Rep. Chris Cannon (R-UT).
The proposed legislation would effectively cap interchange fees, the prices that banks charge retailers for processing credit card transactions. The Conyers-Cannon bill would empower a three-judge panel to set the price of interchange fees to match the rates that would prevail in a mythical “perfectly competitive” marketplace.
“Supporters of the bill claim that credit card companies have excessive market power and are thus able to exert undue influence over interchange fees,” said Center for Entrepreneurship Director John Berlau. “In reality, the credit card marketplace is highly competitive, with four major players and several smaller entrants, along with emerging online payment services like PayPal.”
Interchange fee price controls will hurt U.S. consumers just as capping fees harmed consumers in Australia. When the Reserve Bank of Australia capped interchange fees in 2006, consumers suffered the most: annual cardholder fees increased and rewards programs shrank, but retail prices did not decrease as promised, according to a recent report by the consulting firm CRA International.
“Accepting plastic is a retailer’s choice; some merchants choose to accept credit cards as payment, while others do not,” said Research Associate Ryan Radia. “Interchange fees, along with the costs of handling cash, are one of many factors that retailers consider in selecting payment options for customers. Unless Congress wants to turn a thriving marketplace into a dysfunctional one, lawmakers would be wise to reject Conyers-Cannon price controls.”
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