Progressives and Populists vs. the Credit Card Market

[Kamaji]

Progressives and Populists vs. the Credit Card Market

Veronique  de Rugy
Jul 20, 2023

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.

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That's how we got the Durbin Amendment, part of the 2010 Dodd-Frank Act. This price-control measure capped fees that debit cards could charge. Since then, Sen. Dick Durbin, D-Ill., has wanted to expand the idea to credit cards. So far, that hasn't happened.

Enter the Credit Card Competition Act, which Sen. 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 that banks add at least one additional payment network for their cards. Proponents -- including a handful of 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 a very good reason to fear the emergence of harmful unintended consequences. This is not idle speculation; 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 that almost none of the savings were passed on to consumers despite retailers' $145 billion reduction in fees.

The Durbin Amendment failed to help customers and 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 an estimated 1 million people. Some of that is likely to happen again if more credit-card central planning is adopted.

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Source:  https://townhall.com/columnists/veroniquederugy/2023/07/20/progressives-and-populists-vs-the-credit-card-market-n2625963