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Credit Card Laws We Don't Need

|Includes: AXP, MA, Visa Inc. (V)

If you are like most Americans, you often use  for your purchases.  Behind the scenes, when you swipe your credit or debit card through the machine, the merchant pays a small fee to their bank (i.e. interchange fee) for the ability to accept credit card transactions.  Let me be blunt about this: if the business wants your money, then they would be smart to pay these fees because cash transactions are becoming rarer with each passing day.  ‘Cash only’ businesses are becoming a thing of the past. 

The merchants themselves are becoming increasingly irate that they have to pay these fees to allow their customers to use credit cards and are now turning to the nation’s lawmakers for help.  Bills are already headed for Congress which would allow merchants to enter into collective bargaining with the banks and would make it easier for merchants to steer customers to other forms of payments and let them set minimum and maximum amounts for credit card purchases.

My big question is: why?  Why don’t the merchants offer discounts to customers that pay with cash or check or why don’t they only accept cash?  Why don’t they collectively open their own credit card network like VISA (V), American Express (AXP) or Mastercard (MA) and not charge these fees?  It seems that the merchants want the privilege of accepting credit cards, but they don’t want to pay the banks for the service of providing that privilege.  At some point, someone will have to pay, we all understand that. 

But the real problem is that this issue does not deserve Congress’s attention, which, these days, is in high demand.  It’s a problem concerning a group of merchants who think that the interchange fees are too high.  Given the number of ways the merchants could fix this problem all on their own, perhaps it would be better for them to solve it themselves rather than make it a national issue. 

So, then, why is it a national issue?  Because it can be.  An association of merchants, or an association of banks, is a powerful special interest group in this country.  So much so, that when they aren’t happy with how things are going, they can ask Congress to pass laws to fix things, and they can do this regardless of whether or not these issues are deserving of national attention.  The problem is two fold—the merchants can fix the problem themselves, but they demand that Congress step in; the merchants shouldn’t be able to find support for this issue in Congress, but they can, and easily.  Either way, it should be the merchant’s problem to handle.  Meanwhile, the rest of us are worrying about health care, rising unemployment, bank bailouts, and climate change.  We simply can’t afford to have a Congress that is at the beck and call of special interest groups.

Disclosure: No positions