An Ugly Regulatory Bill

We sent the following letter to all members of the U.S. House today. If you are a House staffer, please note the BOLD text at the bottom of the letter.

Dear Representative,

Club for Growth strongly opposes HR 5546, the misnamed "Credit Card Fair Fee Act of 2008." The legislation proposes price controls that would harm consumers, hurt economic growth, and stifle innovation.

The bill's innocuous sounding title hides an ugly reality -- establishment of a new all-powerful bureaucracy inside the Antitrust Division of the U.S. Department of Justice. These bureaucrats would set prices for the credit card business, and they would publish their rate determinations in the Federal Register.

This is a horrible idea and if it becomes law it will hurt consumers and stifle innovation in a market that has produced incredible efficiency gains. It also threatens economic growth as it would raise the specter that Congress would impose additional government price controls on other industries.

We can understand the frustration of retailers who feel that credit card fees are too high. Yet the answer is not to run to Congress and ask that it set up a new government apparatus to set prices. The answer should instead be more competition and to identify and eliminate laws that might inhibit such competition. This bill takes one step in that direction -- allowing retailers to band together without fear of violating antitrust laws. If the bill had stopped there, then we would not oppose it.

Instead the bill moves in a more sinister direction, giving defacto control on innovation and prices to "Electronic Payment System Judges" in the Justice Department. The standard for their price setting would be cost plus a "normal rate of return in such a hypothetical perfectly competitive marketplace." This, of course, is absurd. Businesses do not run on a hypothetical, they are run in the real world.

One fact that proponents don't mention is that this bill would likely raise prices for many consumers. The fact is many credit card holders get discounts for using their credit cards in the form of rebates, coupons, airline tickets or hotel stays. By accepting such credit cards, retailers are often offering an on the spot discount. For others who can't afford to pay in cash on the spot, a card allows retailers to get paid promptly while leaving the debt collection duties and headaches to the credit card companies.

If retailers don't like the prices they have to pay for processing credit cards, they have other choices. To name just two: they can offer cash discounts, which are 100% legal; or they can offer their own credit cards. Finally, a new competitor is on the scene, the RevolutionCard, which according to its website's pitch to retailers "works just like the traditional credit cards you're used to. With one big difference: No interchange fees. Which means you keep more of your profits with every sale."

We strongly urge you to oppose this legislation and let the marketplace continue to foster innovation and more consumer choices.

If this bill goes to the House floor for consideration, the Club for Growth will key-vote a "NO" on its 2008 congressional scorecard.

Sincerely,

Pat Toomey
President

Update: Current House sponsors of the bill can be found here.