Credit Card Laws That We Don't Need

by Brian Johnson on September 29, 2009

swiping-credit-cardIf you are like most Americans, you often use credit cards 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 us 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.

Our 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 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.

Discussion

barbaraerik
Thank you. Yes, there are both positives and negatives to many laws. Thanks for stopping by.
April 15 at 04:52 am
Mindi Smith
More factors - fraud and default of repayment have grown leaps and bounds and the merchant is receiving guaranteed funds. It's the cost of doing business for all parties. Merchants pay interchange, issuers pay for fraud and default losses.
September 29 at 11:27 am
Mike
Such a great point! Merchants never consider that a lot of their customers never pay back the credit card companies, while the merchant has gotten their money back!!
September 29 at 12:06 pm
Bryan J Busch
Some more factors to consider:

The mechanism for card processors to accept transactions has gotten faster and cheaper, but they're still charging more.

America's interchange fee is much higher than any other country.
September 29 at 08:30 am
Susan
So what? We also have the best rewards cards in the world. And even if they manage to get a law passed (knock on wood), you think the merchants will pass the "savings" on? I don't think so. There'll be all these excuses -- it costs too much to reprice everything, we just won't raise prices as quickly. Hah!
September 30 at 09:56 am
Mike
Since the credit card networks are getting over payed why don't the large merchants like WalMart create their own credit card network that will be more "fair" to merchants??
September 29 at 12:01 pm

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