27 November 2009

We Will All Pay If Congress Panders On Credit Card Legislation

U.S. Looks to Australia on Credit Card Fees

Now, as Congress debates how to rein in credit and debit card companies in the United States, Australia’s experience is being pointed to as an example of just how tricky that can be: for one thing, if regulators limit one fee or rate, banks are likely to find another way to keep revenue flowing.

In the United States, the Government Accountability Office last week issued a report showing that consumers who did not use credit cards “may be made worse off by paying higher prices for goods and services, as merchants pass on their increasing card acceptance costs to their customers.”

The banks and card companies are lobbying heavily against proposed changes. They warn that lower fees will lead them to squeeze credit and raise the cost of credit cards at a time when the economy thirsts for credit to sustain an economic recovery.

But banks in the United States warn that, as in Australia, American consumers may see the costs of using a credit card rise, and the benefits decline, if Congress passes legislation to reduce interchange fees.


Anonymous said...

NEWSFLASH: We are all paying more already in higher costs for everything we buy. What's worse, those who are paying with cash or check are paying more without getting any points or miles. If the GAO passes reform, everyone will NOT pay higher costs for using plastic--just those people who choose to use plastic will pay higher costs. Now that sounds fair to me!

Septimus said...

The entire GAO report can be found here: http://www.gao.gov/new.items/d1045.pdf

To the contrary, the widespread use of credit cards can decrease costs for all consumers and regulations that restrict or impose costs on credit card users can increase costs for all consumers. Attempts to shift the burden of the costs of the credit card networks to consumers to discourage credit card use could have negative unintended consequences to all consumers.

Here are some quotes from the report:

p. 28: Some researchers argue that consumers—even those paying cash or by check—may still be better off because of widespread card use.

While merchants may pay more out of pocket to accept credit cards than they do for other forms of payment, credit cards also provide significant benefits to merchants, such as lower labor and processing costs and increased sales.

For example, one of these researchers has theorized that the benefits of increased credit card use may lower merchants’ costs, which in turn would allow them to sell their goods and services more cheaply

p. 31: Staff from card networks and card issuers told us that the efficiency of card payments has allowed merchants to reduce their staffing, thus saving on labor costs.