April 11, 2008 | written by Bruce Cundiff
The row between the WSJ and Reps. Conyers and Cannon
Coming to the game a little late on this one (sorry…travel woes had be stuck in limbo, er, Dallas, for a few days), and I find myself in the unenviable position of agreeing with the WSJ editorial board.
There’s a bill pending in the House that will seemingly create individual negotiations between merchants and their acquirer/processors for transaction pricing. The WSJ had an editorial spewing venom about it on March 29, and the bill’s sponsors, Representatives Conyers and Connor, responded earlier this week.
I just can’t see the logic of this bill. It just seems to create an absurd level of inefficiency in an arena where people pay a premium for efficiency (the value of interchange…get it??).
So on the one hand, the sponsors of the bill refuse to just come out and legislate caps on interchange. That would be too heavy-handed. But the bill they propose kind of sort of does this in a roundabout way anyway. And on the other hand, the sponsors of the bill are railing on the “excessiveness” of credit card fees, interchange, etc. So they’re basically saying that they think those caps should happen.
It all comes back to the eventual and predicted merchant response to implementing control over interchange pricing, and the belief that consumers are really the ones that get a raw deal from interchange. It seems like Representatives Conyers and Cannon have fallen hook, line and sinker for these arguments. Consumers don’t pay interchange, merchants do. It’s a cost of doing business. If you don’t want to pay interchange, don’t accept cards. [Insert additional trite saying here.]
There is no way that merchants, operating on such thin margins (the reason they gripe about interchange to begin with), are going to give anything back to consumers if they negotiate better prices on interchange. Nor SHOULD they. They should charge what the market will bear for their products. Isn’t that sound business?
Isn’t that kind of like how interchange works?
Bruce,
And let’s not forget the merchants’ shareholders. Don’t they have a prior claim on profits for taking an equity risk? Since price is classically defined as being a function of cost, competition, and value, it seems illogical to assume that consumer prices will be lowered merely because one element of the total cost of doing business declines.
I’m not a fan of blogging ditto-heads but after reading H.R. 5546, I share your view that Reps. Conyer and Cannon are doing some posturing; or maybe fund raising. Thanks for the post.
John MacAllister
There’s a couple points I like to bring up though.
Today there is no realistic way that merchants can refuse to accept credit cards and stay in businesses – especially businesses like gas stations where virtually all transactions are done with cards. At the same time, I’ve read news reports about gas stations in Penn. that are actually offering discounts of up to 5 cents for consumers who pay with cash because the current fees are so high.
I think the point of the legislation isn’t to necessarily put on caps, but to add some transparency to a system where there is no competition to keep fees reasonable. If the credit card industry can unilaterally set fees and continue to rake in billions of dollars in profits a year causing businesses to raise prices just to make a profit themselves – and then passing the cost onto consumer, then there is definitely something wrong with the system.
I’ve done some work with unfaircreditcardfees.com, who have been watching this issue for a while now, and I seriously believe that the current system is completely lacking any accountability presently. And I think that the reason Conyers and Cannon are looking into it is because its a rare issue that hurts both business and consumers at the same time.
thanks for the comment baker, and I definitely understand that position. I do, however, feel that the crux of the legislation is to move toward regulated pricing, but
re: gas stations—I’m thinking that the margins that individual gas station merchants earn have something to do with it, but I know enough about the math to be dangerous (and I will always jump at the opportunity to bash the oil companies!). Additionally, MasterCard has taken specific action in the face of increasing gas prices to alleviate some of this.
But the larger question still lingers…what’s the value of creating poor legislation? Does that not inherently invalidate the position and cause more harm than good if it’s not done right?
Of course…I offer no alternative as to HOW it could or should be “done right,” but I propose that inaction may be the better course of action in this case (or at least action that doesn’t involve poor legislation).