Don't Let 7-11 Give Card Users a "Big Gulp" of Big Govt
7- Eleven and other retailers, who rightly complain about costly government mandates in health care and other areas, are hitting Capitol Hill 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 petition 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. Australia's 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.