Competitive Enterprise Institute | 1899 L ST NW Floor 12, Washington, DC 20036 | Phone: 202-331-1010 | Fax: 202-331-0640
Today, 7-Eleven Inc. and other big retail chains will hit Capitol Hill to offer Congress members and their staffs a supersize serving of hypocrisy.
Retailers, who rightly complain about costly government mandates in healthcare and other areas, are now calling for Congress slap price controls on the interchange fees they pay to banks and credit unions for services associated with the credit and debit cards of retail consumers.
7-Eleven stores offer many conveniences to their customers, but in this case, they are trying to force down the throats of American consumers a “big gulp” of big government. If Congress acts on 7-Eleven’s misleading petition to put price controls on interchange fees, consumers will pay the price through the reduction of reward programs such as frequent flier miles, and the possible return of annual fees.
Credit unions and community banks will pay the price too in higher costs that will make it more difficult to offer cards to their customers, forcing savers to go to big banks if they want the convenience of credit and debit cards.
Chris Dodd, D-Conn., chairman of the Senate Banking Committee, has drunk 7-Eleven’s Kool-Aid, or rather Slurpee, and swallows the big retail line on interchange fees. "Every state you go to, you hear it from retailers," Dodd told the Hartford Courant. "The fees are excessive."
But contrary to the spin of Dodd, 7-Eleven, and other big retailers, interchange fees, also called “swipe fees,” are only levied on merchants, and none of the major legislation before Congress would require that retailers pass on one penny of their resulting savings on interchange fees to consumers. And Australia’s recent experience with interchange price controls resulted in no tangible benefits and plenty of added costs for consumers down under.
John Simon, a top regulator at the Reserve Bank of Australia, recently told a conference of the Federal Reserve Bank of Chicago, that there was no evidence of retailer savings being passed on to Australian consumers, according to the Credit Union Times. Yet the Australian credit card holders faced plenty of costs to “make up for” the retailer costs in terms of higher fees and fewer rewards such as frequent flier miles, according to a study by the U.S. Government Accountability Office.
Community banks and credit unions, which have lower profit margins on their credit and debit card offerings, would also lose out. In Australia, the Credit Union Times reports, “a cap on card interchange similar to one promoted by some U.S. retailers has turned Australian CU card programs from being contributors to their bottom lines to net money losers.” Similarly, Mike Clayton, head of Champion Credit Union in the small town Canton, North Carolina, says price controls on interchange fees could “put us into a deficit on that card program.”
There are a variety of options for retailers in credit card payment services, such as new online methods of payment, to ensure competitive pricing. CEI also supports expanding the ability of retailers to form their own affiliated banks, or industrial lending companies, to do their own card processing if they so choose.
But lawmakers should also realize that credit and debit card processing is not free, and retailers would not be accepting cards if they did not lead to more purchases in stores and reduce the costs of alternatives such as carrying cash. Before credit cards were so prevalent, expensive armored cars hauling cash from retail stores were a common fixture.
In short, there is no such thing a free lunch, and lawmakers should not enable 7-Eleven and other retailers to soak consumers with more lunch fees.