August 18, 2023
In all my years working in the policy arena, one of the things I have yet to get used to is the tendency of Washington D.C. to create titles to legislation that are the antithesis of what the legislation actually does. Whether it’s the “Affordable Care Act,” the “No Child Left Behind Act,” or the “Inflation Reduction Act,” D.C. has a hall-of-fame record at political distraction through titles.
The latest attempt at misdirection involves the use of the word “competition.” It is being used by Senator Dick Durbin for his latest version of the same legislation he tried last year. He calls it the “Credit Card Competition Act,” even though it excludes existing market participants from the regulation he proposes. For organizations like The James Madison Institute whose mission is to advance free market competition, Senator Durbin targeting specific companies (Mastercard and Visa) and carving out others (American Express and Discover) from his legislation is not only policy malpractice, but also insulting to everyone who reads it.
If Senator Durbin were truly wanting a level playing field, fairness, and competition, he would craft a piece of legislation that treated everyone equally. He did the opposite. As one egregious example, take American Express (one of the card issuers carved out from the legislation). According to data from The Nilson Report, American Express alone had the second most purchase volume of any credit card issuer in the United States, $1.03 trillion in 2022. Amex was narrowly beaten for the top spot by Chase, which had $1.14 trillion in purchase volume but was nearly double its third-place competitor Citi, which had $563 billion in purchase volume.
American Express consistently charges the highest fees to merchants of all the major credit card networks. In July, it reported record revenue and announced that card member spending is at an all-time high. The company earned $2.2 billion during the second quarter of 2023.
That begs the question, why would a small group of Washington insiders, led by Sen. Durbin, craft a credit card “competition” bill that carves out the country’s second-largest credit card issuer?
First, let’s look at what this legislation is NOT. Durbin argues that his version of “competition” is needed in the credit card market, even though more federal regulation on credit card transactions will more likely harm consumers through massive cuts to cash-back programs combined with fee increases. This Washington “competition” would more likely cost Americans while undermining the security and infrastructure of their credit transactions.
So, here is the real driver. This legislation is less about “competition” and more about trying to manipulate our free-market system and pick winners and losers. That is why we see some included and others excluded. It is part of a concerted effort both at the federal and state levels to tip the scales in favor of some at the expense of others. This should never be the role of policymakers, and yet that is what we see here.
The legislation will also have downstream effects as large retailers reap benefits at the expense of smaller businesses. It is why many big box retailers have come out in support of the legislation, because they are tired of negotiating their own rates with credit card companies and would keep more money in their pockets if the level playing field of capitalism was tilted in their direction. The Durbin bill as written would take billions of dollars directly out of the pockets of American consumers, in the form of travel point benefits and cash back programs and put it into the coffers of a select handful of politically plugged-in corporate market behemoths.
Further, the legislation would be a huge hit to the free market and intellectual property rights by requiring networks to offer up their data security measures for free.
If this bill was truly about competition, it would not pick winners and losers. If this bill was about lowering fees for small businesses, it would not exempt the credit card network that is often cited as being the most expensive for merchants to accept.
But as has been the case too often with the United States Congress, policymakers are taking a cow pie, calling it filet mignon, and expecting the American people to not recognize the taste.