Credit card companies should compete for our business

OPINION:

The genius underlying the American economy is that we get results from profit-seeking businesses. The profit motive, an undeniable principle of human nature, which people like Sen. Bernie Sanders deny, is what has propelled the United States into becoming the epicenter of global finance.

And with that, the competition, driven by the profit motive, is what necessitates innovation. Basic economic principles have always and will continue to always turn the wheel of positive adaptation.

That basic dynamic underpins decades of expansion in the quality of life for the average American.

Of course, the freedom for businesses to compete in an interference-free market doesn’t happen automatically. From the Sherman Antitrust Act to the present, policies have had to be put in place to ensure that businesses can’t unfairly find a way to avoid competition.

The foundation of all of that, of course, is the idea that businesses shouldn’t be able to coordinate (or fix) prices. They must compete, unencumbered, for the whole system to work.

Probably the most prominent example of price coordination is from OPEC, a global organization made up of oil-producing nations that proceeds to fix the price of crude oil.

While the American economy prides itself on our antitrust culture, there is still a gigantic problem sitting in the middle of the U.S. economy today and it affects nearly each and every one of us. That is the way the two dominant credit card companies (Visa and Mastercard) set prices.

You see, each of those two companies works with thousands of banks that issue credit cards. While those banks compete in the other areas, when it comes to the fees they charge Main Street businesses, they let the credit card companies decide what their prices will be.

Even if the biggest banks in the nation, such as JPMorgan Chase, Wells Fargo and Bank of America, don’t decide their own prices. Those three (and lots of other banks) all charge merchants the same schedule of fees, set by the processing powerhouses, in order to accept credit cards.

Because of this, the banks are taken out of the competitive equation, which in turn is a killer for Main Street. With no competition, the fees grow by leaps and bounds.

Most of the fee is a percentage of the amount charged. It’s as if the bank has made itself a mandatory partner, directly sharing in the revenue of unhappy merchants.

Not only that, but the bank takes its cut of the proceeds on the amounts of taxes that merchants collect. Generating revenue and thus tax revenue is a service that merchants provide to state and local governments, but they get penalized for it because they have to pay a percentage of the tax (which they can’t keep) to the credit card bank.

Without basic market competition, the fees have become so big it is hard to comprehend. Last year, the fees that businesses paid just to take credit and debit cards added up to $160 billion.

That was up about $22 billion from 2021. Understand how much that is. Just that increase of $22 billion was more than the total revenue of the National Football League, which pulled in $19 billion.

Common sense and belief in free competition would tell you that this sort of price fixing can’t be right. The fees are about as much as the total net profits that merchants make on their sales.

What does that mean? It means that the fee has to be built into the prices Americans pay for goods and services every day.

Going back to the basic competition model championed by President Theodore Roosevelt and others could help restore fairness to the market. If Visa and Mastercard had to compete with other networks (such as Star, Pulse, NYCE and Shazam) just as they do on debit cards, then we would finally bring some of the benefits of the American competitive system to the credit card market.

The Credit Card Competition Act would do just that. Congress should pass it.

• Jobob Taeleifi is a Turning Point USA and Daily Caller contributor.