Politicians often forget that the more they prescribe how companies deliver a service, the costlier and less accessible it becomes.
The excessive regulation of consumer credit is a prime example of this maxim. For instance, at the federal level, the Dodd-Frank Act and the numerous regulations issued by Consumer Financial Protection Bureau effectively increased the cost of providing credit in their efforts to protect consumers, resulting in millions of low-income households being denied the ability to obtain credit. Why would North Carolina want to replicate that here?
Access to credit cards for many North Carolinians may be threatened if the State Legislature approves legislation currently on its agenda.
House Bill 650 would exclude the tax and tip portions of a credit card transaction when computing the interchange fee that merchants pay when customers use their credit cards to make a purchase.
At first glance, this proposal might seem reasonable, but the bill threatens to create logistical nightmares, resulting in substantial unintended consequences for businesses and consumers alike.
There is no precedent for excluding a portion of a transaction from interchange fees, and it is unclear how this would be done. HB 650 may necessitate separating taxes and tips as independent transactions, which would obviate much of the convenience of using a credit card and force consumers to swipe or tap multiple times for each purchase--or cover taxes and tips with cash.
Do we really want to go back to the days when people had to carry a significant amount of cash on a trip in case their credit cards weren't honored by an establishment?
We all know now that “If you like your health care plan, you can keep it” turned out to be manifestly untrue. I am ready to nominate this bill for the 2025 award: Does anyone really believe that these laws will “protect merchants from fees” without grievous side effects for regular people?
This is not the first time that card fees have been an issue. Some merchants offer a cash discount to avoid paying the fee, while others add a surcharge to credit card purchases to cover the cost of the service they receive. Some states--such as New York--allow cash discounts but ban surcharges.
Moreover, experience from the federal government's 2011 cap on debit card interchange fees found that the vast majority of merchants did not pass the savings to consumers through lower prices. Instead, rewards programs vanished, consumers ended up paying higher fees, and millions of working-class households found themselves unable to obtain credit. This historical context should make lawmakers wary of repeating past mistakes at the state level.
There are certainly ways to improve the regulatory framework for our national and global financial systems, but it is not clear that there are any actions at the state level that will improve things for consumers--which should be the explicit goal of any such legislation. As it stands, HB 650 manifests the unfortunate reality that government regulation, more often than not, fails to solve the problem it is intended to solve and ends up creating new problems never anticipated by the legislator or regulator.
Consumer protection laws rarely protect consumers--probably because their intent is invariably to protect a special interest (in this case, predominantly retailers with billions in revenue). When consumer protection laws are enacted piecemeal at the state level, they tend to be even less effective at achieving the proposed goal.
The North Carolina Legislature should leave financial markets alone.
