{"id":21935,"date":"2023-06-13T07:00:07","date_gmt":"2023-06-13T11:00:07","guid":{"rendered":"https:\/\/ifintechworld.com\/banking\/durbin-remains-persistent-and-misguided\/"},"modified":"2023-06-13T07:00:08","modified_gmt":"2023-06-13T11:00:08","slug":"durbin-remains-persistent-and-misguided","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=21935","title":{"rendered":"Durbin Remains Persistent \u2013 And Misguided"},"content":{"rendered":"
\n

Senator Dick Durbin (D-IL) deserves credit for persistence. He successfully introduced new regulations and price controls in the debit card market in 2010, and he\u2019s consistently tried to expand both in the credit card market ever since.<\/p>\n

The fact that the 2010 Durbin amendment led to the virtual disappearance of debit card rewards programs and no-fee checking accounts, without delivering the lower retail prices supporters touted, hasn\u2019t deterred him. (For more on the harmful consequences, see here, here, here, here, and here.)<\/p>\n

He\u2019s at it again, and already has a few cosponsors, including the new Republican Senator from Ohio, J.D. Vance. The problem is that this effort was misguided in 2010, and it\u2019s just as misguided now. The new Credit Card Competition Act contains the same harmful policies.<\/p>\n

Specifically, Durbin and Vance want to impose price controls and routing requirements that essentially force companies to offer comparable services provided by their competitors. Only politicians would be so bold as to promote such a policy and call it pro-competition.<\/p>\n

<\/fbs-ad><\/p>\n

But there\u2019s really nothing new here. Vance isn\u2019t the first Republican to favor price controls in the card markets, and all the previous arguments against Durbin\u2019s anti-consumer efforts still apply.<\/p>\n

For starters, Visa
\n V
\n <\/fbs-ticker> and MasterCard
\n MA
\n <\/fbs-ticker> do not have a duopoly, where two companies have virtually the entire market. Prior to the Durbin amendment, there were 15 card networks. Since 2016, there\u2019s still no duopoly. A look at just the credit card market \u2013 rather than the combined credit and debit card market \u2013 shows Visa has about a 50 percent market share (by volume), while Mastercard and American Express
\n AXP
\n <\/fbs-ticker> have roughly 20 percent each. And Discover, the fourth largest card network, has been growing slowly and steadily.<\/p>\n

The market can also be viewed by the share of Americans that have a particular card. This view shows that Visa has less than a 50 percent share, Mastercard has less than 40 percent, Discover has 18 percent, and American Express has 15 percent. Visa certainly is the larger company, but there is no duopoly in this market in any objective sense.<\/p>\n

And even if two card networks did dominate the market, that fact alone would not warrant price controls and routing requirements. If these companies were colluding and fixing prices, thus ripping off America\u2019s retailers, an obvious solution would be to start a new network and undercut their prices.<\/p>\n

There are more than one million retail establishments in the United States. If the Durbin-Vance coalition is right, and it\u2019s so easy to run a card network while charging dramatically lower prices, these store owners are leaving billions on the table. Given their familiarity with electronic payments, it\u2019s a no-brainer to start their own payments association, much like banks did to form the Visa network in the 1970s.<\/p>\n

That\u2019s competition. Provided, of course, the new company remains free to charge whatever price they prefer.<\/p>\n

But Durbin and his cosponsors don\u2019t want to go that route. It\u2019s very difficult to avoid being cynical here, especially since the only support for extending this policy to the credit card market comes from the retail trade associations. There\u2019s nothing pro-consumer about giving retailers a legal mandate over how consumers pay for their purchases, and there\u2019s zero evidence such a requirement would result in consumer savings.<\/p>\n

It’s also easy to be cynical when the joint press release for the new bill claims \u201cVisa and Mastercard\u2026. will not negotiate with Main Street merchants.\u201d Given this fight has been going on since at least 2010, and both sides regularly visit their offices, the cosponsors must be fully aware the card networks generally have no relationships at all with merchants. The networks are effectively middlemen, and the retailers deal with their banks.<\/p>\n

That kind of language in the press release only serves to cast Visa and Mastercard in a sinister light.<\/p>\n

Objectively, the Credit Card Competition Act is a terrible public policy because it implements a price control, something which discourages<\/em> competition. The same goes for requiring a company to offer a competitors\u2019 services. Both types of government mandates harm consumers.<\/p>\n

If Congress moves forward with this idea, consumers will lose. Banks will make up the cost however they can, whether by charging higher fees or eliminating rewards programs. And fewer companies will invest in new and improved networks because it will be more difficult to earn a profit, thus keeping the U.S. payments system technologically stagnant.<\/p>\n

As I\u2019ve argued multiple times, if Congress wants to help consumers by encouraging competition and innovation, it will repeal the Durbin Amendment, not extend its provisions to the credit-card market.<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Senator Dick Durbin (D-IL) deserves credit for persistence. He successfully introduced new regulations and price controls in the debit card market in 2010, and he\u2019s consistently tried to expand both in the credit card market ever since. The fact that the 2010 Durbin amendment led to the virtual disappearance of debit card rewards programs and […]<\/p>\n","protected":false},"author":1,"featured_media":21936,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[237],"tags":[83],"class_list":["post-21935","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-banking","tag-featured"],"yoast_head":"\nDurbin Remains Persistent \u2013 And Misguided | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Senator Dick Durbin (D-IL) deserves credit for persistence. 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