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  • No Credit to Congress: House Judiciary Committee Votes on Price Controls

    In 1979, Robert Schuettinger and Eamonn Butler wrote a book called “Forty Centuries of Wage and Price Controls,” detailing 4,000 years of disastrous attempts by government to control market prices. Tomorrow, the House Judiciary Committee will vote on adding a 41st century to that litany of failure. The target: credit card “interchange fees.”

    Interchange fees are the fees paid by one bank to another, and passed on to merchants, as the price for processing a credit card purchase. They are set by credit card associations, such as MasterCard and Visa based on complex formulas, but average around two percent of each transaction.

    The stores that pay these fees have long complained that these fees are too high. And, they say, faced with the market power of the credit card associations, they have no ability to bargain them down.

    This claim is suspect, to say the least. While the merchant’s coalition now lobbying Congress includes many small businesses, such as convenience stores and gas stations, giants such as Wal-Mart have also played an active role. Anyone who thinks the folks from Bentonville can be pushed around by anyone just hasn’t been paying attention.

    Smaller merchants had hardly been victims either. Not only is there competition between credit card associations, but there’s competition between credit cards and cash itself. Political memories may be short, but only a few years ago it was still impossible to make a small purchase using a credit card: cash was still king. The expansion of credit since then has been a true retail revolution, benefiting merchants as well as consumers. This result wasn’t the result of monopoly, but of competitive firms making their product more attractive in the marketplace.

    Nevertheless, Congress is moving ahead with a scheme to have the government decide what interchange fees should be. Under bill being voted on tomorrow, H.R. 5546, sponsored by Reps. John Conyers (D-MI) and Chris Cannon (R-UT), three newly-minted “Electronic Payment System Judges” would be charged with deciding the correct rate from among final offers from merchants and credit card associations when negotiations fail. Specifically, they are to: “establish rates and terms that most closely represent the rates and terms that would be negotiated in a hypothetical perfectly competitive marketplace.”

    Of course, to make sure the judges get things right, the law specifies the qualifications of the judges: They must be lawyers with seven years experience.

    That’s somewhat less than reassuring. Does anyone think that three government-appointed judges – even (or especially) if they are lawyers — will be able to determine what prices should be in the complex and fast-changing world of credit financing? More likely, they will make a hash of it, as did regulators in Australia a few years ago, when credit fee limits resulted in skyrocketing direct fees to consumers.

    Forty centuries is enough for price controls. Let’s not go for a 41st with price controls on the credit system.

    Posted in Economics [slideshow_deploy]

    8 Responses to No Credit to Congress: House Judiciary Committee Votes on Price Controls

    1. Pingback: Credit Crunch » No Credit to Congress: House Judiciary Committee Votes on Price Controls

    2. Darvin Dowdy, Houst says:

      What the merchants are not factoring in is the speed of the transaction. That, alone, pays for the extra 2% or so. Especially for a high volume retailer like Walmart.

      I actually got in line behind someone the other day who pulled out their checkbook and commenced the process. It took at least 3-5 minutes. And that is with the check clearing ok. If there'd been a problem it could've easily go on longer.

      Were I the cc companies I'd certainly make merchants aware of this +. I know the buying public will pay an extra 2 cents on the dollar not to have to wait for extended periods of time.

      I like to shop at business' that promote and accept all forms of payment and legal tender. I hope we never become a cashless society. Different strokes for different folks. Merchants should stop their whining and cater the the customers preference. DD

    3. Ed, Leesburg, VA says:

      Who in Congress dreams this stuff up? Do they have an idea jar in the hallway over there that folks just throw dumb ideas into every now and then? Ideas for work items that just waste time? Those people need orange hair and red noses. Why not work on helping us out of current set of messes instead of creating new ones? Cheee. Who is watching these folks?

    4. Dave, New Orleans says:

      The selfless Statesmen are dead.Politicians have devolved into simply having to do something, anything, just to justify their existance,most of the time its wrong…For the sake of the country..use your vote wisely and vote less government..

    5. Harry in Chicago says:

      Ed and Dave have said it rather well. I feel as if I am standing and watching our country fade away and its a very helpless feeling. However, I can assure those who feel the same way, we will go down swinging.

    6. peter133,australia says:

      politicans are not doing anythig they are sitting and watching there power has been increased.Harry is saying right that we will go swinging.This is truth.Ideas make a men perfect but do that ideas prove.

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      peterAddiction Recovery Nebraska

    7. Pingback: The Merchant Account Blog » Interchange regulation - H.R. 5546

    8. Jeanna, Fargo says:

      As a small merchant I am paying an average of 5.5% of a customers ticket in credit card fees. Before I began accepting credit and debit cards I was lucky to post a 10% net profit. Take 5.5% away from that and it becomes very difficult to survive without passing the cost on to the customer. When talking with customers, the majority are unaware that the merchants are socked with these fees. It truely is a hidden fee. How else would they know. Help!

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