Originally published by DC Journal on August 30, 2023.
Competition is integral to the functioning of a prosperous market economy. It drives innovation, efficiency and responsiveness to consumer needs. Unfortunately, politicians often mistake their role in the process. Too often, they attempt to dictate the terms of competition from on high rather than simply providing the best legal environment from which competition can emerge and then letting the market work.
Two years ago, President Biden — with great fanfare — unleashed an executive order promising to promote economic competition, but his stance toward the market was one of antagonism. His administration has constantly sought to blame market participants for the inflationary effects of bad government policy, while the Federal Trade Commission has repeatedly embarrassed itself with ideologically driven lawsuits — failing in court after court — opposing seemingly every proposed business merger.
Now, congressional populists on both sides of the aisle have come together to add fuel to the fire. They’re pushing a bill called the Credit Card Competition Act of 2023 (CCCA) that would intervene to impose backdoor price controls on payment processors.
Whenever you swipe a credit card, the payment is processed over the network designated by the card issuer. Visa and Mastercard are the most-used payment networks, but others keep the market competitive.
The processor and issuer collect what’s known as an interchange fee for each transaction. Merchants that take credit cards as payment, while happy to benefit from providing their customers with the convenience of paying via credit cards, have long sought to have Washington intervene and adjust the fees to their benefit.
If passed, the CCCA would no longer allow banks to choose just one payment processor but force them to allow a second option, neither Visa nor Mastercard. Amusingly, the requirement itself is a tacit admission that there are such options in the first place, and therefore competition in the processor market is hardly lacking. And that’s not even considering the many non-credit card payment options.
It wouldn’t be the first time merchants persuaded Washington to do their bidding. The Durbin Amendment to the 2010 Dodd-Frank Act capped interchange fees on debit cards, and the unintended consequences proved detrimental for consumers. Banks recovered their losses by reducing free checking and eliminating debit card rewards. Merchants passed very little of the savings to consumers.
Efforts at replicating Durbin Amendment-style price controls on credit cards have faced political resistance precisely because proponents offer no evidence that the market lacks competition, and they have a track record of making matters worse.
The CCCA approach might be more creative to entice political support, but it offers no hope of better results. In fact, added burdens that it would place on banks would hinder competition because larger banks are more capable of absorbing the costs than smaller competitors.
With the CCCA, interventionists hope competition can serve as the fig leaf for picking winners and losers. But real competition is distinguishable from crony capitalism because it doesn’t require politicians to dictate the terms of business.
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Image credit: jarmoluk | Pixabay License.
