Digital Transactions Authoritative, insightful and timely information for payments professionals
The Cato Institute’s Nicholas Anthony warned recently that the Biden Administration is waging “a war on (payments-industry) prices.” The payments industry provides services funded by a range of fees paid by consumers and businesses. Demagogic regulators and politicians pillory industry fees as exploitative, as “junk fees,” and “a tax.”
These assaults are made in a steadily worsening political climate. Despite the increasing number and severity of attacks, the payments industry has been reactive, resisting each assault as it occurs and treating each as a one-off.
Whoever frames the terms of the debate has the high ground. It’s imperative that the payments industry get off its backheels and make an affirmative case in the public square for the value it delivers and for the freedom to compete and innovate.
Consumers and businesses need to be reminded of that value. They should also be alarmed about the threat Washington mandarins imposing restrictive regulations and price controls pose to the payments value and innovation that the regulators take for granted.
Finance charges are the credit card industry’s largest source of revenue. Introducing the Capping Credit Cards Interest Rate Act, Republican Senator Josh Hawley declared “exploiting people through high interest rates is wrong.” Hawley’s bill would limit credit card interest rates to 18%, which would reduce the number of Americans approved for credit cards and average credit limits. While Hawley would piously trumpet his good intentions, in what universe would this help Joe and Sally Sixpack?
Singing from the same hymnal, the Consumer Financial Protection Bureau accusatorily reported that large credit card issuers’ median interest rate for cardholders with good credit was 28.2%, compared to 18.15% for small issuers, and said large issuers were three times more likely to charge an annual fee.
The CFPB is trying to socialize the introduction of credit card price controls. It blamed higher rates on a “lack of competition.” One would be hard-pressed, however, to find an industry where consumers and businesses have more choice than with credit cards.
Vilifying the payments industry makes for strange bedfellows. Progressive CFPB Director Rohit Chopra and populist Republican Hawley both threaten the payments industry and credit card holders
Credit cards are a fabulous product, providing most Americans with a convenient, secure means to pay worldwide in-person and online. They enable access to cash, simplify recordkeeping, provide rewards, and offer the option to instantly access credit.
If a national cap were imposed on credit card interest rates, revolving credit would become less available, particularly to riskier consumers with less access to financial services—the very consumers many industry critics say they want to help.
—Eric Grover is principal at Intrepid Ventures.
(Part II, addressing matters related to interchange, will appear Friday.)
