Congress is back at it again with more last-minute legislative antics. As the U.S. Senate considers the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act (S. 1582), which provides a regulatory structure for certain cryptocurrencies, certain lawmakers are attempting to slip the Credit Card Competition Act (CCCA) as well as a 10 percent interest rate cap on credit cards into the bill. Both proposed policies are price controls that empower the federal government to dictate how financial services offered and provided to consumers across the country. History shows that price controls are destructive policies that will deprive Americans of the financial products on which they currently rely.
Last week, Sen. Roger Marshall (R-Kan.) filed the CCCA as an amendment to the GENIUS Act. This amendment would undermine the bill’s intent by harming consumers, reducing choice, and increasing risks for fraud by centralizing rather than decentralizing payments. It would create economic challenges, not economic freedom, The bill instructs the Federal Reserve to write regulations that would require banks, credit unions, and payment card networks to develop credit cards with hardware and software that enables the functionality of at least two networks. This would create artificial “competition,” and function as a price control that drags down credit-card interchange fees.
The CCCA will assuredly distort the U.S. payment ecosystem by undermining payment security, largely eliminating rewards and cash back and reducing the overall allocation of credit to cardholders. Conservative groups wrote a letter making these points. This has also already happened in the past. An author of the CCCA, Sen. Dick Durbin (D-Ill.) championed the eponymous Durbin amendment, which was enacted as a part of the Dodd-Frank Act. This imposed price controls on debit card interchange fees. This caused lenders to limit “access to free checking accounts and rewards programs.”
The CCCA would also negatively affect small businesses. Enactment of the bill could cost small businesses $1 billion in rewards and $700 billion in revolving lines of credit — a devastating result that would contravene President Trump’s goal of reducing burdens on small businesses.
Moreover, the CCCA would remove protections Americans rely on for their financial security. “Because the bill forces credit cards to allow access to all networks, proprietary technology will be exposed to competing networks, destroying incentives to create new and innovative fraud protection and cybersecurity,” another coalition of conservative groups wrote in a letter.
Another price control amendment that was filed to the GENIUS Act is Sen. Josh Hawley’s (R-Mo.) cap on credit card interest rates. While both individuals and businesses can all commiserate over the burden of higher interest rates, a rate cap is ill-conceived and reminiscent of policies pursued under President Jimmy Carter. In 1980, President Carter implemented price controls that ultimately shifted the cost of bank products onto consumers in the form of new fees. The caps also made it harder for lower-income Americans to access capital from financial institutions and lowered retail sales due to declining consumption.
Soon after the credit controls were put in place, the U.S. economy overcorrected and deteriorated, exacerbating a recession and contributing to an economic slowdown. The Federal Reserve Bank of Richmond acknowledged in 1990 that “Credit controls thus proved to be a blunt policy instrument whose economic impact was impossible to manage.” As so often happens, the best laid plans of technocrats went awry.
Like President Carter, Sen. Hawley filed his amendment as prices remain elevated beyond what the Fed deems non-inflationary. However, government-imposed price controls won't solve high prices. Which is why Congress should look beyond quick fixes that amount to politicians attempting to blunt the message of the marketplace.
Lawmakers should staunchly oppose policies that empower the Fed, harm credit-card security and rewards, harm small financial institutions, and reduce consumers’ access to credit. The Senate needs to reject the CCCA and interest-rate cap amendments.
