Credit Card Fair Fee Act Threatens Consumers with Higher Costs

The House is scheduled to mark up H.R. 5546, the “Credit Card Fair Fee Act,” this week. Sponsored by Reps. John Conyers (D-Mich.) and Chris Cannon (R-Utah), the legislation would impose price controls and federal regulation on the fees charged by credit card companies for using the electronic payment networks. More specifically, the legislation would create a negotiation process that ends by empowering a panel of judges to establish what a “fair” price should be.

“This market has worked well without the heavy hand of government,” said Wayne Brough, Chief Economist for FreedomWorks. “Competing networks exist, consumers and retailers are free to use whichever cards they like, and the market continues to grow. Consumers get convenience, a reduced need for cash, and fewer trips to the bank. Shop owners enjoy a network that can safely and securely clear transactions from consumers anywhere in the world. The simple fact is that retailers are unwilling to pay for the benefits provided by credit cards, and are seeking new laws to lower their costs.”

Unfortunately, this means higher costs for the consumers who also use the system.

“That is exactly what happened when Australia imposed price controls. Consumers paid higher annual fees, and many lost the benefits of bonus programs, such as frequent flyer miles,” continued Brough.

Credit cards have expedited commerce while expanding the relevant size of the market for retailers and consumers. A new layer of price controls and government oversight, will only hamper the operations in this market and shift the burden from retailers to consumers.

For a more detailed analysis of electronic payment networks and the potential costs to consumers of price controls on interchange fees, see, “Paper or Plastic? The Transition from Cash to Payment Cards.”

http://www.freedomworks.org/uploads/20060725.pdf