Federal legislation tackles high 'swipe fees' and protects privacy - Albuquerque Journal

Federal legislation tackles high ‘swipe fees’ and protects privacy

Question: Did you know that every time you swipe, insert or tap a credit card at the checkout counter, the business is on the hook to pay a fee to the credit card company and bank? Nicknamed “swipe fees,” this expense often amounts to one of the largest line-items behind labor costs. And as a result, retailers often have no other choice but to pass along a portion of the costs to consumers in the form of higher prices.

As an executive at a chain of travel centers throughout New Mexico and Arizona, I’ve dealt with the painful financial dance firsthand. Last year, with swipe fees averaging roughly 2.5% of every purchase, the business paid more than $800,000 to credit card companies and big banks. It’s a difficult pill to swallow as we navigate persistently high inflation and supply chain challenges that are making running a business more difficult than ever.

Charging a reasonable fee for managing credit card transactions is understandable. But gaming the system to evade competition and gouge merchants and consumers in the process is not. And that’s exactly what’s happening.

Visa and Mastercard control roughly 80% of the credit card market – which means they have formed what is effectively a duopoly. Working alongside big banks, the credit card tag team is artificially inflating swipe fee levels without fear of backlash. Why? Because competition – which keeps prices under control in other areas of the U.S. economy – is severely lacking. Merchants have no other option but to accept the cards, pay the high fees and shut up. It’s a deal they can’t refuse.

The lack of competition is a systemic problem that if left unaddressed will only get worse. The past 10 years are a cautionary tale. While technological improvements and innovation lowered the cost of managing card transactions, swipe fee levels rose unchecked. The “transaction tax” nearly tripled during the period with no ceiling in sight.

As a result, roughly $140 billion – that’s “billion” with a “b” – is paid annually to quench the growing thirst of credit card companies and banks eager to pad their pockets. For the average family, that amounts to paying an additional $900 a year in higher prices.

Enter the Credit Card Competition Act of 2022. Co-sponsored by Sens. Dick Durbin, D-Illinois, and Roger Marshall, R-Kansas, in the upper chamber and Reps. Lance Gooden, R-Texas, and Peter Welch, D-Vermont, in the lower chamber, the bill would inject a dose of free market competition into the credit card market. In short, the legislation will require banks with more than $100 billion in assets to give retailers more options on how to process the credit cards they issue to bank patrons.

There are alternative companies to Visa and Mastercard that provide the same service without all the baggage. In practice, the policy will force credit card companies to compete for a retailer’s business and, in turn, drive down swipe fees.

In addition to fostering transparency and competition within the credit card market, the legislation will also help protect Americans from the influence of the Chinese Communist Party. China UnionPay, which is under the control of the Chinese government, currently has a seat at the table to help set the security protocols for the U.S. credit card industry.

Concerningly that means China has its foot in the door and is only a short step away from being able to pry into American financial information. Therefore, the Credit Card Competition Act proactively bans China UnionPay or any other foreign entity from processing transactions in the United States.

The status quo isn’t working. Big credit card companies and banks are using their leverage to sidestep free market competition at the expense of businesses and families. New Mexico’s elected leaders in Washington should support the Credit Card Competition Act to even the playing field and protect American privacy.

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