Merchants ask Congress: why tilt the scales against fair and free markets?
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When huge companies first began appearing in the 19th century, Americans worried these companies were growing so big that they could squash competition and control entire industries. 

Those people were right. Giant trusts appeared controlling sugar, oil, steel, railroads, and others industries. 

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Those days are gone thanks to Teddy Roosevelt’s trust-busting. But nothing is perfect: Despite antitrust laws safeguarding competition and the free markets that made the U.S. the world’s largest economy, attempts by corporations to price-fix and engage in other anti-competitive chicanery have persisted. 

A major problem these days occurs when banks process transactions after consumers swipe their debit and credit cards to pay for everything from lunch to laptops. Visa and MasterCard dominate this market. They use that power to quash competitors so they remain free to set the price-fixed "swipe fees” their banks charge merchants and consumers. Due to this lack of competition, Americans pay astonishingly high swipe fees: from two to ten times higher than the rest of the industrialized world. 

Congress decided to encourage competition in the market for debit cards in 2010 as part of the Dodd-Frank financial reform law. In the first year alone, reform saved consumers nearly $6 billion in lower prices, according to a prominent economist. 

Now, under the guise of general bank relief, some members of the House Financial Services Committee want to roll back these reforms as part of an effort, called the Choice Act, to repeal Dodd-Frank, including debit reform. Mark-up on the bill is today.

Businesses across the country are calling it the “No-Choice Act” because it would dismantle the more open market for debit cards that reform created.

If the No-Choice Act passes, there will no longer be incentives for the banks to compete on debit prices.  Congress told the Federal Reserve to limit how much the largest banks could charge if they chose to link arms and price-fix their fees.  On the other hand, if instead they competed, like most other legitimate businesses, then no limits apply and the banks can charge whatever price the free market will bear. Competition is the key.  

Of course, none of the big banks really wants to compete—free markets reward innovation, but they don't provide guaranteed returns. Still, the incentive and the opportunity is there—at least for now.

Debit reform also encouraged competition by preventing the card companies from paying banks to lock Visa and Mastercard's competitors out of the debit card processing business. Those competitors often are faster, cheaper, and certainly are safer:  they all use PINs.  Nevertheless, they were in the process of being locked out of the market by the bigs until debit reform passed. The No-Choice Act would reverse their opportunity to compete. 

It comes down to this: You’re either for competition, with the benefits of a fair shake for everyone, from the banks to merchants to consumers; or you’ve got a finger on the scales so the biggest U.S. banks can impose the highest possible price-fixed fees without threat of competition. 

Those banks already charge merchants the highest swipe fees in the industrialized world on credit and debit cards.  Yet the biggest banks bellow even though their own submissions to the Federal Reserve show them earning an average 500-percent profit margin on debit card transactions. Compare this with the single digit margins of most Main Street businesses.  For many businesses swipe fees have become the second highest expense they face – bigger than rent and healthcare. 

Diminished competition for processing and monopoly-like swipe fees impose enormous burdens on businesses by raising prices, curtailing expansion and hiring, as well as diverting resources from security and innovation. 

Congress should give all the players in this market a real choice—by preserving the free, competitive market choices brought by debit reform—not the phony choice this proposed legislation would impose.

Mallory Duncan, Senior Vice President and General Counsel, National Retail Federation.


The views expressed by authors are their own and not the views of The Hill.