Senators Dick Durbin (D-IL) and Roger Marshall (R-KS) have re-introduced their bill to crack down on credit card interchange. That’s the cost businesses pay to accept credit cards.
Since banks and card networks like Visa and Mastercard make money on each transaction, they spend money to encourage those transactions. That’s what funds credit card rewards. It’s even to a large extent what funds the airlines, when carriers like American often don’t make money flying planes but ultimately earn money selling their miles to banks. Reducing interchange reduces card rewards.
Of course if that were somehow good for the world, it would be tough to argue for our miles and points. But it isn’t good for the world. Countries that have capped interchange haven’t seen prices fall to consumers. Consumers are used here a fig leaf for retailers who want to lower their costs – even though it’s already less expensive to accept cards than it is to accept cash, and consumers paying by card spend more.
- Corporate welfare for retailers. Merchants benefit from taking credit cards. Credit cards are less expensive to process than cash (staff make incorrect change and pocket cash for themselves, large cash transactions can drive up insurance rats) and credit card customers spend more. Large merchants want lower costs, and want government to do the work for them.
- Doesn’t benefit consumers. When the Durbin amendment limited interchange for debit cards prices did not fall according to research from the Federal Reserve. When Australia capped credit card interchange, prices did not fall. In fact the government of Australia allowed merchants to charge customers the cost of interchange. Prices rose, and the government had to step in to limit how much merchants imposed for these new costs because they were gouging customers.
- Bad for the economy. Capping interchange hurts the economy. When credit cards are less profitable, card issuers invest less putting them into the hands of consumers. Card annual fees also rise, as they have in Australia. And availability of credit is crucial to growth, smoothing household spend and supporting productive investment.
I do not expect this to go anywhere. It hasn’t gone anywhere in the past, and we now have divided government. In the last Congress, its sponsors tried to tie it to a must-pass defense appropriations bill and fellow Senators didn’t go along. It’s unlikely to garner majority Republican support in the House, so probably doesn’t even come up for a vote there. And it hasn’t been a priority for this administration. President Biden served as Senator from the Banks in Delaware.
(HT: Bill S)