Congressional wastrels now worry about credit-card fees

Some members of Congress apparently believe that they know how to run a credit card company better than the actual credit card companies. Considering that officials in D.C. haven’t balanced a budget in over two decades, have saddled taxpayers with over $32 trillion of debt and struggle to accomplish anything meaningful, I’d wager to say that they are in over their heads.

Despite Congress’ obvious shortcomings, U.S. Senate Majority Whip Dick Durbin, D-Ill., and Sen. Roger Marshall, R-KS, have decided to try to reinsert themselves into the business of credit. A few weeks ago, they reintroduced the Credit Card Competition Act, which is just the latest government attempt to meddle in private markets, and it should have credit card holders up in arms.

Proponents of the bill say the aim is to increase competition and reduce fees to benefit Americans. “This act would give the Federal Reserve one year to issue regulations that would force banks that have assets of over $100 billion to give merchants at least one other credit card processing network option besides Visa or Mastercard, and thus the competition among smaller networks would theoretically create price competition resulting in lower processing fees,” reports USA Today.

That sounds wonderful in theory, but the devil is in the details. It would supposedly work by targeting interchange fees. Every time a consumer uses a credit card, the company charges the business an interchange fee of about 2.24 percent on average, which Durbin and company want to limit, but this is an important component of credit card companies.

Obviously, the major credit card companies have qualms with this proposal, but consumers should too. Interchange fees are one of the ways that credit card companies are able generate the revenue to keep interest rates and annual fees lower, offer people with low or no credit a line of credit and provide rewards, like cash back, discounts, frequent flier miles and so on.

Despite what bill proponents say, there’s quite a bit of competition already in the industry. While Visa and Mastercard dominate the market, American Express and Discover also compete with them and offer different products to attract customers.

Nevertheless, if Congress enacted the Durbin bill, then credit card companies would have to alter their business models in order to remain profitable. To do so, they might have to cut the rewards, which is what draws many people to particular credit cards, raise their annual fees and/or stop giving people with questionable credit another chance. In fact, if history tells us anything, it’s that Durbin’s crusade will not benefit consumers.

In 2019, he offered an amendment—limiting transaction fees on debit cards—that passed. However, a University of Pennsylvania Carey Law School study found that it did little to help Americans. “The objective of Durbin was to increase consumer welfare,” the study reads. “For consumers to benefit, banks needed to not offset Durbin losses and merchants needed to pass through savings to consumers. Instead, we find causal evidence that banks fully offset losses by charging higher fees for their products.”

Considering the evidence, you may be wondering who supports the measure. As USA Today reports, several massive business associations are eagerly promoting it, which makes some sense. They are the ones whom credit card companies charge interchange fees. In fairness, I wouldn’t want to pay fees either, but I don’t think we should rely on Congress to solve all of our squabbles. Rather than asking the government to get involved, businesses could instead negotiate better terms with credit card companies or move to a cash-only system.

There are plenty of issues with the Durbin bill, and even the credit unions are speaking out in response. “Expanding interchange price controls and routing mandates to credit cards is bad policy, pushed by big box retailers who are looking to pad their bottom line. Contrary to merchants’ deceptive claims, data shows consumers end up paying more across the board,” reads a National Association of Federally-Insured Credit Unions press release. “The legislation doesn’t promote competition. It opens the payments system up to risk from untested networks.”

The latter warning is an important one to consider too. Credit card companies have designed their own interchange networks. If they are forced to use an alternate one, which may not have sound security measures, then that could theoretically put individuals’ personal information at risk. That’s bad for all parties involved.

While I’d like to give Durbin and his co-sponsor the benefit of the doubt, their legislation should give other lawmakers, businesses and consumers pause. It simply raises far too many concerns and demonstrates once again that Congress should resist the urge to intervene in private markets.