Once upon a time credit and debit cards were only available to the rich and famous. Now they are ubiquitous. More than 80% of adults have them slipped in their wallets. This convenience has changed the way we shop and pay for nearly everything.
About three of four of all transactions are now processed digitally through banks’ credit card companies and the banks.
Americans don’t have to carry hoards of cash and coins in their purse or wallet or rush off to the ATM machine when they want to purchase things.
For store owners, card transactions reduce fraud and theft from the cash register. By accepting cards for payment, customers are prone to spend more at the store or restaurant. Profits rise.
It’s a classic win-win.
So why are politicians trying to intervene in a market that works well and is highly competitive?
Because the retailers who benefit from credit cards want to force credit cards and banks to charge less. They’re agitating for government price controls – and that’s contrary to the free market system.
Here are the facts. Visa, Mastercard, Discover and others make money by charging the “interchange fee” that the seller pays to the credit card companies to underwrite the service costs of each transaction. Usually these fees are equal to between 1.5 to 2% of the dollar amount on the receipt.
Remember, the credit card companies have to process billions of transactions and they have to cover the cost of fraud and nonpayments.
Big retailers think these costs are excessive. But they are free to issue their own store credit cards – remember the days of JC Penney and Marshall Fields cards? – or they can agree to only accept and swipe the cards with the lowest fees. Or the stores can simply require cash or checks and avoid interchange fees. But they will risk losing customers.
Dick Durbin a Democratic senator from Illinois, has been pushing price controls on credit/debit card fees for years. He has a lot of Republican support. He says the fees are ripping off consumers because the costs are passed on to them.
Now several states are getting in on the game. Florida’s legislature, for example, is getting close to passing a bill exempting sales taxes from interchange fees.
The evidence shows that when caps have been imposed on some types of credit/debit cards, the result has not been lower prices for shoppers. The merchants cash in on the difference or the banks impose other fees. In some cases they put limits on who can have a credit card – which hurts lower-income card holders.
But the grape slurpee or the Doritos sold at the 7-11 doesn’t cost any less.
Florida’s bill is a mess with a labyrinth of complex rules that may become a template for other states. The card companies would face penalties of $1,000 for each violation.
Smaller retailers with fewer transactions would be far more negatively impacted than a Walmart or a Staples.
And for what? The amount of money that merchants would save from this measure is trivial. Two percent of an 8% sales tax is a few pennies on a $100 transaction.
The Florida House staff analysis notes that “the bill may require the implementation of new point of sale hardware and software and transaction processing software by the various participants in the transaction process to implement the bill’s requirements.” Who will pay for that? Consumers, of course.
The state legislative group ALEC just finished its report card on state economic policy – which I co-authored – and Florida finished once again in the top eight. This bill moves in the opposite direction. If the bill gets to Gov. Ron DeSantis’s desk, he should veto it.
If it ain’t broke, don’t fox it. It would be a shame to turn Florida Into anti-business California.