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Issues/News>
Is this why Chris Cannon was sent to Washington?
April 10, 2008
Delegates:
Nothing is more relevant to a congressional election than
the legislation proposed and supported by your Congressman.
Ask yourself if this is how you want your representative
spending his political capital? Is this the problem you
sent him to Washington D.C. to solve?
Republicans are supposed to deregulate—not fix prices,
stifle competition and create more government bureaucracy.
Competition in the free market is the answer, not
congressional meddling. I do not believe this should be
the role of the federal government. Chris Cannon is wrong
on this issue. I agree with the Wall Street Journal.
Thought you should know……… Jason Chaffetz
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The Wall Street Journal
Credit-Card Wars
March 29, 2008
Even amid a shaky stock market, last week's Visa IPO made a
splash, climbing more than 40% from its initial offering
price. So why is Congress trying to fix a $2.5 trillion
industry that isn't broken? Apparent answer: Because it's
there.
At the behest of a coalition of U.S. retailers, House
Democrat John Conyers of Michigan and Republican Chris
Cannon of Utah have introduced the Credit Card Fair Fee Act
that would regulate fees that the credit-card industry
charges to retail stores. Consumers who actually use credit
cards may ask: What's the problem? Some 90% of Americans
with an income of more than $30,000 use credit cards. Just
eight years ago, only about one-quarter of consumer
transactions were done with plastic; today it's above 40%
and rising.
A steadily increasing number of retailers – the very folks
who are seeking Congressional redress from Visa and
MasterCard – accept credit cards for payment. Just don't
ask the folks behind the cash register about "interchange
fees." Those are fightin' words.
Typically, a retailer gets about 98 cents on the dollar for
a credit-card transaction; the bank that issued the card
gets most of the remaining 2% in what's called an
"interchange" fee. The card industry rakes in about $35
billion in fees a year. Much of the complaint about fees
comes from small retailers, who say that because they
operate on thin margins, they pay more in fees than they
earn in profits.
On the other hand, retailers benefit from credit cards.
Studies show definitively that shoppers spend more in
stores when they have a credit card than when they pay
cash. Total sales volume tends to be higher for stores that
accept credit cards.
It's not at all clear why Messrs. Conyers and Cannon need
to belly-slam into the middle of whether the benefits of
accepting credit cards are worth this 2% fee. Retailers
have options to avoid the fees. They can offer customers a
discount on cash purchases. Larger retailers can even issue
their own cards offering discounts as an alternative to
Visa. Some big chains exploit their own market power by
negotiating lower fees.
Still, the merchants want government to decide what these
fees should be. The Conyers-Cannon bill requires that any
credit card company with more than 20% of the credit and
debit market -- Visa has about 50% and MasterCard 25% --
negotiate for 90 days with a coalition of retailers on a
mutually acceptable fee. (The retailers would gain an
antitrust exemption for these deliberations.) If the
parties can't agree, a three-person panel of "electronic
payment judges" will "determine rates and terms" which
shall be binding. That sounds like a price-control regime.
The merchants contend this political muscle is needed
because banks collude to set interchange fees and because
Visa and MasterCard control so large a share of the market
that they can effectively set prices. And it may be true
that the credit-card companies are setting prices higher
than in a perfectly competitive market. The Visa
interchange fee has increased over the past decade to 1.76%
from an average of 1.5%. Economies of scale should be
driving fees down, as in most other service-fee
industries.\
But an equally strong case can be made that Visa and
MasterCard have attained their market share and profits
because they've built an efficient and superior product
through a vast network of cardholders and banks. No one
should want the precedent of punishing a business for
winning huge numbers of voluntary customers by outcompeting
rivals.
The Ninth Circuit Court of Appeals dealt with the
merchants' complaint on March 7 in an antitrust case,
Kendall v. Visa. The ruling stated: "The [bank] consortiums
indirectly establish the merchant discount fee, much as the
cost of eggs sets a floor price of an omelette on a menu.
Just like the restaurateur, the banks charge the merchant a
higher price than their cost of business to make a profit.
This behavior suggests a rational business decision, not a
conspiracy."
Competition is beginning to emerge in this industry. There
are four major credit-card companies, and lower-fee cards
are growing in popularity. One of the biggest areas of
electronic transactions is Internet sales; PayPal is a
competitor and customer of the credit-card industry and has
25% of the online market. Google has launched an electronic
payment service, and last month the RevolutionCard came on
the market – a credit card with no fees.
As consumers we'd like to see interchange fees come down
too, but through market innovation and competition, not
Congressional fiat.
(The above article appeared in the Wall Street Journal on
March 29, 2008).
Paid for by Friends of Jason Chaffetz, LLC
(Tip of the day: Jason's last name is pronounced "Chay-fits")
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