Blogs For Victory

NRO notes a move in Congress to tinker with credit card fees charged to merchants:

…As credit-card use has increased, the credit-card fees have been a larger item in retailers’ budgets. So lobbyists representing them have gone to Congress to ask for help. Reps. John Conyers and Chris Cannon, a Michigan Democrat and a Utah Republican, have obliged. Their bill would create a panel of judges to force negotiations over the fees and, failing a settlement, impose ones they deem fair.

Remarkably, this attempt to impose price controls has won the support of 17 Republicans, including such conservatives as Joe Wilson (S.C.), John Sullivan (Okla.), and Steve King (Ia.). They should know better. Australia has tried these controls, and the results have predictably been an increase in credit cards’ annual fees charged to customers.

The flaws in the legislation do not end there. Credit unions and community banks that issue credit cards would get hurt badly. Since the bill applies only to credit-card networks that have more than 20-percent market share, American Express would be exempt from it (even though American Express tends to charge higher fees).

Supporters of the bill are said to be considering modifying it. To win over more Republican legislators, they would get rid of the price controls and instead create an antitrust exemption so that merchants could band together to negotiate. No economic libertarian should find this offer appealing. If one side to a set of transactions gets an exemption, so should the other. An antitrust waiver for the merchants would amount to a congressional attempt to rig a deal in the merchants’ favor. If it succeeded, it too would be likely to yield increased fees to customers. And, to repeat, the merchants are not being victimized. They just want a better deal. Which is fine: but they should not get one through an act of Congress.

This is an area I have some expertise in as for the past 7 years I have worked for one of the largest banks – and largest credit card issuers – in the United States and, indeed, the world. How shall I nutshell this complex issues?

Easy – Credit cards suck.

Not the basic concept – as a matter of convenience its hard to beat a credit card. Much easier to just swipe a card than to fumble with cash or tediously fill out a check. But the way credit cards are managed by the banks is just horrific. If there’s a thing a credit card issuer can do to make things worse for everyone (including, in the long run, for the issuer), the banks are doing it. I’ve personally seen circumstances where accounts have their APR more than doubled for no discernable reason. You can’t get a bank to cut you slack on your credit card debt until you’ve gone well past due. The answer to being over limit? Charge a fee, which puts the account even further over limit. And its not just banks being stupid – government stupidity has come into play, too. Like this: for fear of being accused of “red lining” an area of the country, banks have remarkably lowered the threshold for obtaining a credit card, so all sorts of people who are either shiftless or simply ignorant of how credit works are able to obtain credit cards…and run up debts with a large number of late fees, over limit fees and punitive interest rates. Its a massive problem and it invites further interference by government in the marketplace.

What to do?

Well, the problem with massive banks is the same problem with massive government – anything that big cannot run itself properly. We mindless drones stand agog at the practices coming down the pike; for the life of us we can’t figure out what would make an ostensibly knowledgable corporate executive make decisions which are clearly counter-productive. But they are made – again and again and again. We do have our theories – mine is that these executives are so fixated on quarterly statements that they just don’t care what is happening as long as the balance sheet looks good long enough for them to exercise their stock options. Added to greed and cowardice is distance – some CEO in New York City simply can’t know what the credit needs of, say, Nevada are. Nevadans know, but no one in NYC wants to know what Nevadans know – so decisions are ground out which bear little or no connection to the actual problems being confronted or the needs being identified…and a huge smiley face is put on the whole show as the corporation’s executives – desperate to be thought of as nice guys – implement “diversity training” and shovel money out to environmentalist groups.

So, my solution: re-work the tax code to heavily punish large corporations and greatly reward new corporations, and corporations that are small to mid-sized. Force the CEO’s to break down their behemoths (and they’ll do it, too, because they’ll own stock in all the successor corporations) into smaller, regional companies able to actually work within the economic realities of their respective areas…and this would include being able to be flexible in what rates to charge merchants who accept a bank’s credit cards (ie, “mom and pop” can’t afford large fees, but Wal Mart can). In my economic world view, bigness is usually the culprit when there is a problem – bureaucracies and corporations get so big they can’t function but at the same time are so big they crowd out good ideas and innovation. Human beings aren’t built for either a Department of Housing and Urban Development or a General Motors…we’re built for Catholic Charities and Dodge, get it?