Positive changes coming for small business lending program
Congress should reject European price controls
They say that imitation is the sincerest form of flattery-and a corollary to that adage is the idea that if you want to be successful, you look at someone who has achieved success and build on how they got there. The opposite, of course, is to imitate folks who are less successful and think, somehow, that this is a recipe for success.
Yet that seems to be what some folks continually call for when they want the U.S. to be "more like Europe" economically-Europe, whose socialist and quasi-socialist policies have led to complete economic stagnation. Although the American economy has experienced slow growth in recent years, the numbers show that our growth far exceeds the growth experienced in Europe.
One reason is that American consumption rates are at far higher levels than in your average European nation.
Another reason is that while America's regulatory costs have ballooned since 2005, Europe's have positively skyrocketed. Thankfully, the United States has not copied the statist policies in many European counties that hamper economic growth. But right now, well-funded lobbyists are pushing a European idea that the government should set price controls on payment processing fees. These same lobbyists were successful five years ago in implementing a cap on card swipe fees, yet that was not enough for them. They are back for more.
This time they're clamoring for European-style price controls and claiming that the fees are weighing down the economy. "These costs create a huge drag on consumer spending," wrote Mallory Duncan, chairman of the Merchants Payment Coalition, in a recent op-ed published in The Hill.
I realize it's Duncan's job to create a problem for the government to solve, but reading the article I couldn't help but recall a line from a famous Louis C.K. routine "Everything's amazing and nobody's happy," in which he reminisces about the days before the convenience of credit and debit cards.
If you wanted money you had to go in the bank. It was open for like three hours, you had to stand in line and write yourself a check like an idiot. And if you ran outta money, you'd just go, "well, I can't do any more things now."
It's easy to forget that anytime, everywhere access to the money in your bank account wasn't always available. This is a result of innovations in electronic payments technology and security.
Retailers have long grown tired of paying for the convenience and security of credit and debit cards that allow them to process transactions faster, attract more consumers, and save on labor costs.
Over five years ago, arguing that it would benefit consumers, they successfully lobbied Sen. Dick Durbin (D-Ill.) to insert a provision in the massive Dodd-Frank bill that capped the fees retailers paid for using debit cards. Since then, retailers have pocketed billions. That wasn't enough, so now they're back and asking for more price controls.
Ironically, retailer's push is also coming as the evidence mounts that interchange price controls don't actually benefit consumers at all.
Three economists recently studied the matter for the academic journal Economic Quarterly, conducting a survey of 420 merchants across 26 retail sectors two years after the price controls went into effect.
According to the study, the price controls have "substantially reduced" average revenues to the credit card companies "by almost one half." But retailers didn't lower prices to reflect the changes.
"A sizable fraction of merchants are found to raise prices or debit restrictions as their costs of accepting debit cards increase. However, few merchants are found to reduce prices or debit restrictions as debit costs decrease," the study found.
The authors continued, "very few merchants (1.2 percent) reduced prices, while a sizable fraction of merchants (21.6 percent) increased prices."
To recap, Congress cut the revenues for the credit card companies in half, and 1.2 percent of retailers lowered their prices in response. That doesn't sound like a very good deal for the consumers for whom these fees are supposedly such a "huge drag."
This shouldn't be surprising. During the fight on the Durbin Amendment five years ago one of the largest retailers admitted they, not consumers, would reap the benefits. When asked about the effect of the Durbin Amendment on her company's bottom line, Home Depot Chief Financial Officer Carol Tome said "We think the benefit to The Home Depot could be $35 million a year."
So there you have it. Retailers are asking the government to step in and institute price controls in the private sector so that they can pocket billions. The government price controls they lobbied for generated billions in extra revenue for them and they haven't passed the saving on to consumers.
This is one of the more insidious problems we have in Washington today. Retailers haven't earned these billions by inventing a new product or service that consumers need. They didn't make billions in new revenue through some ingenious innovation that saves consumers time or improves their security. They lobbied Washington for their bonanza and as the evidence shows, there is no benefit to the consumer.
Imitating the European model of capping fees and inserting themselves in to this battle between two different special interests would be a mistake for Congress. This is a fight better left to the free market where the credit card companies and the retailers can battle this out.
Langer is president of the Institute for Liberty, a conservative public policy advocacy organization.