Politics & Policy

Credit Unworthy

You may have noticed that more and more places take credit cards, and Americans use their cards for more and more of their purchases. Retailers who let customers use credit cards get more business, and have to deal with fewer bounced checks. The retailers have to pay for these benefits: A portion of their credit-card sales, usually around two percent, goes to the card issuer. If a merchant takes credit cards, it is because he thinks the benefits exceed the costs.

Being human, however, he would prefer to get the benefits while paying lower costs. As credit-card use has increased, the credit-card fees have been a larger item in retailers’ budgets. So lobbyists representing them have gone to Congress to ask for help. Reps. John Conyers and Chris Cannon, a Michigan Democrat and a Utah Republican, have obliged. Their bill would create a panel of judges to force negotiations over the fees and, failing a settlement, impose ones they deem fair.

Remarkably, this attempt to impose price controls has won the support of 17 Republicans, including such conservatives as Joe Wilson (S.C.), John Sullivan (Okla.), and Steve King (Ia.). They should know better. Australia has tried these controls, and the results have predictably been an increase in credit cards’ annual fees charged to customers.

The flaws in the legislation do not end there. Credit unions and community banks that issue credit cards would get hurt badly. Since the bill applies only to credit-card networks that have more than 20-percent market share, American Express would be exempt from it (even though American Express tends to charge higher fees).

Supporters of the bill are said to be considering modifying it. To win over more Republican legislators, they would get rid of the price controls and instead create an antitrust exemption so that merchants could band together to negotiate. No economic libertarian should find this offer appealing. If one side to a set of transactions gets an exemption, so should the other. An antitrust waiver for the merchants would amount to a congressional attempt to rig a deal in the merchants’ favor. If it succeeded, it too would be likely to yield increased fees to customers. And, to repeat, the merchants are not being victimized. They just want a better deal. Which is fine: but they should not get one through an act of Congress.


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