Don’t Let 7-Eleven Give Card Holders a “Big Gulp” of Big Government

D.C., September 29, 2009—On
Wednesday, 7-Eleven Inc. and other big retail chains will call on Congress to
slap price controls on the interchange fees they pay to banks and credit unions
for processing credit and debit card charges.

Statement by John Berlau, Director of CEI’s Center for Investors and

7- Eleven and other retailers, who rightly complain about
costly government mandates in health care and other areas, are hitting Capitol
Hill Wednesday to offer Congress members and their staffs a supersize serving
of hypocrisy.

7-Eleven is trying to force a “big gulp” of big government
down the throats of American consumers. If Congress acts on 7-Eleven’s misleading
to put price controls on interchange fees, consumers will pay the
price through the reduction of credit card 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 at all. This could force their customers to abandon
their local lending institutions if they want the convenience of credit and
debit cards.

Contrary to the spin of the 7-Eleven and other big
retailers, interchange fees, also called “swipe fees,” are only levied on
merchants, and none of the major legislation currently before Congress would
require retailers to pass on one penny of their resulting savings to consumers.
recent experience with interchange price controls, for example,  resulted in no tangible benefits – but 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 Credit Union 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 of 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. The Competitive Enterprise Institute 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 as a free lunch, and
lawmakers should not enable 7-Eleven and other retailers to soak consumers with
more fees. 

CEI is a non-profit, non-partisan
public policy group dedicated to the principles of free enterprise and limited
government.  For more information about
CEI, please visit our website at