Sal Nuzzo and Grover Norquist
November 25, 2023
In Tallahassee and Washington, bad ideas keep coming back long after they have been exposed as driven by special interests and damaging to consumers and taxpayers. So here we go again having to stop yet another attack on your right to have and use a credit card.
If you thought that bad idea was stopped last year by the Florida Legislature, you are right. But as in bad zombie movies, it’s baaack.
The legislation now being pushed (again) in Tallahassee parallels the big government provisions of the “Dodd-Frank” bill that Democrats passed in Washington in 2010. After Dodd-Frank took effect, more than 20% of merchants raised prices, and only 1% lowered them. According to a study conducted by the University of Chicago, after Dodd-Frank, consumers lost between $22 billion and $25 billion.
It is government price controls. Government regulation pushing aside consumers and businesses and setting prices. Yes, it trashes our free-market economy and makes government more powerful and expensive. And it also has been shown to hurt consumers and local retailers. This time, the old/new legislation would limit the benefits and data security that Floridians currently have with their credit and debit cards.
These proposals prohibit an interchange fee, or a service fee for using credit and debit cards, from being applied to the full amount of a transaction. Its negative effects would be significant and far reaching, particularly in terms of cost to Florida’s small retailers, homegrown banks and credit unions. Financial institutions, such as small community banks and credit unions, would be required to rebate merchants the amount of an interchange fee charged on the tax amount of a transaction.
The legislation gives merchants leeway by allowing them to bill banks or credit unions up to six months after the electronic transaction occurred. This clearly is the government siding with one industry over another. This is pure rent-seeking policy that empowers the state government to dictate service fees negotiated between private parties. There is no current market failure this is solving.
An interchange fee is not for public or governmental use. It is a fee negotiated between private parties. The fee is used to allocate revolving lines of credit, improve privacy and fraud protection and pay for rewards programs. Removing sales tax from the calculation of the interchange fee is not a tax cut; it is a way for special interest groups to pad their pockets.
Government-mandated price control like this is anathema to the foundational principles of free-market enterprise in the United States.
Amid all this fighting, consumers — the ones who stand to lose the most — are forgotten. Consumers will not receive savings if these proposals are enacted. Ultimately, 22 million hard-pressed Florida consumers and 137 million annual visitors to the state will pay the price.
The Florida proposals also make it harder for financial institutions to implement improved cybersecurity protections for consumer data, because the policy will reduce interchange fee revenue that is used for fraud protection technology, such as tokenization.
Additionally, the proposal makes it more expensive to fund rewards programs and co-branded cards that offer airline points or sky miles to consumers. These extra costs will undoubtedly result in higher costs for consumer services or an elimination of services altogether.
Lawmakers have a choice. They should choose policies that benefit free-market principles and reject costly, unnecessary legislation that is no more than a rent-seeking exercise by special interest groups.
Grover Norquist is the president of Americans for Tax Reform. Sal Nuzzo is the senior vice president at The James Madison Institute.
