According to recent NBC polling, 68 percent of registered voters believe the U.S. economy has spiraled into a recession. As consumers tighten their belts and families look for strategies to rein in spending, federal legislation has been introduced that will help bring financial relief to Americans. The bill should be a top priority as Congress returns from the August recess.
Currently, consumers are being gouged at the checkout counter because a tag team of credit card companies are gaming the system. Dubbed “swipe fees,” every time a customer swipes, inserts, taps, or makes a payment online, credit card companies and banks charge merchants a fee to handle the transaction.
And these extra expenses add up and inevitably roll downhill to consumers. Nearly $140 billion is paid every year to cover these transaction taxes. Parsed out by household, it’s estimated that the average American family pays an additional $900 annually because of these high swipe fees.
Collecting reasonable compensation for managing credit card transactions is understandable. But exploiting small businesses and their customers with a middleman price fixing scheme is not.
Visa and Mastercard have formed a duopoly that dominates roughly 80 percent of the market. As a result, the companies aren’t kept in check by competition, which in most other cases keeps prices under control. Consider the quick-service restaurant market. McDonald’s understands it can’t triple the price of its cheeseburgers because consumers will simply patron another chain like Burger King or Wendy’s.
In the universe of credit cards, this isn’t the case. Visa and Mastercard are free to hike fees (often in tandem) without fear of backlash because the corporate giants are effectively the only game in town. Therefore, merchants and their customers are left with a deal they can’t refuse.
Consider that while technological innovations have driven the cost of managing card transactions down, swipe fees have more than doubled over the past decade. In areas of the U.S. economy where real competition is present, the opposite trend has occurred. Take flat screen televisions for example. Not only have prices been cut in half since 2012, but the screen sizes have gotten bigger and improved in quality.
The solution is transparency and competition. And that’s exactly what the Credit Card Competition Act can provide. Co-sponsored by Sens. Dick Durbin (D-IL) and Roger Marshall (R-KS), the legislation injects a dose of free market competition into the credit card market.
How does it work? In short, the bill requires big banks that hold more than $100 billion in assets to offer additional options on how a merchant can process the credit cards they issue to their card users. There are alternatives that offer better service at lower prices without the baggage of Visa and Mastercard. The change would force credit card companies to compete for a merchant's business, which, in turn, would lower swipe fees that trickle down to consumers.
The U.S. economy is on shaky ground and consumers are gearing up for a period of uncertainty. Lawmakers should help relieve some of the financial pressure being felt at the checkout counter by passing the Credit Card Competition Act.
