A new study by economist Stephen Moore this week says that legislation pending in Congress to restrict transaction fees by credit card companies will not necessarily help consumers. The study, published by the Committee to Unleash Prosperity, challenges claims made by a bipartisan group of Senators who are advocating passage of S. 1838, the "Credit Card Competition Act,” which would restrict credit card transaction fees.
"Studies have shown that when fees are restricted by government regulations, about 70% of the savings go to the merchants, while consumers get little benefit at the cash register,” according to Moore. He claims “some studies have found that 70 to 80% of retail merchants do not change their prices at all after credit card interchange fee caps are implemented.”
Senators Dick Durbin (D-IL), Roger Marshall (R-KS) and Peter Welch (D-VT) sent a letter to Mastercard and Visa on Sep. 13 requesting that the companies not proceed with plans to change their fee structure. “If you choose to go forward, it will only provide further evidence of a broken market,” the letter said. The letter was also signed by House Members Lance Gooden (R-TX), Tom Tiffany (R-WI), Zoe Lofgren (D-CA) and Jeff Van Drew (R-NJ).
In the letter, the lawmakers said the market “is desperately in need of more competition,” which they “aim to address by passing our bipartisan, bicameral legislation.”
Critics of the legislation claim that it will not improve competition, and will instead add complexity for banks, card companies, and consumers. The bill would result in regulation on banks in "four-party card systems that have assets over $100 billion,” which appears aimed to affect the largest card companies most, according to critics of the legislation.
According to the study by the Committee to Unleash Prosperity, the bill appears intended to push the largest companies out of existing merchant relationships. “In the current proposed bill, its authors have disguised the effective control on interchange fees in pro-competition rhetoric,” the study said.
In a June statement by the Senators, they said their bill would lead to regulations that would ensure banks “cannot restrict the number of networks on which an electronic credit transaction may be processed to less than two unaffiliated networks, at least one of which must be outside of the top two largest networks.”
In the study, Moore wrote that this requirement "would distort how credit card networks compete for customers and shift power to retailers at the expense of both consumers and credit card companies.”
The study also claims that popular consumer reward programs provided by the largest credit card companies would be affected by S. 1838.
“Issuing companies could no longer offer the same rewards and fraud protections currently provided to customers," Moore wrote. "These factors would effectively drive interchange fees down, but at the cost of so many of the benefits that Americans depend on – including easy access to credit cards and availability of rewards programs that lower purchasing costs for consumers,” he said.
In July, Senators Durbin, Marshall and Welch submitted S. 1838 as an amendment to the Defense appropriations bill. That effort was not successful. Senator Marshall has stated that he intends to ensure that the bill will be passed in the Senate by the end of the year.
Federal Newswire contacted the Senator’s office to ask if he intends to offer amendments to aid bills for Ukraine or Israel, though his office did not respond before the deadline.
