On a day when the Bush administration is getting caught for misusing credit cards, it's a good reminder that the industry itself is broken. I work for a group that's focused on unfair credit card fees, so I see it all the time.
Not that the Wall Street Journal is willing to face the facts about just how broken the industry is. They don't DO facts.
So it's nice to see Rep. Conyers defend his bill, the Credit Card Fair Fee Act, in their pages. The Journal's faulty logic and the response below:
Last week the Wall Street Journal editorial page, well known for bending the facts around into a form of truthiness that they find politically useful, published an "editorial" on the credit card industry: "Credit Card Wars."
The subject: the artificially inflated interchange fees that force up the price of goods, even if you don't use credit cards. That's what Conyers' bill is focused on, and it's got a decent chance of getting out of committee and onto the floor. That is, IF the banks haven't bought off enough "middle of the road" Democrats. (And maybe the Republicans, but you don't have to pay them off to do evil. Also, they aren't getting anywhere near power, so why donate to them?)
I digress. This editorial is shockingly bad if you follow the payment card industry. Take for instance this bit here:
It's not at all clear why Messrs. Conyers and Cannon need to belly-slam into the middle of whether the benefits of accepting credit cards are worth this 2% fee. Retailers have options to avoid the fees. They can offer customers a discount on cash purchases.
Not really. If you're in an industry that sells one type of thing, it's possible to do so. Unfortunately we can't all run gas stations and liquor stores, and the way Visa and MasterCard design the Interchange fee, where it changes beased on calculations of what kind of card you're using, what industry you're in, etc., it's not possible to calculate this at the point of sale.
Earlier, the Journal writes:
On the other hand, retailers benefit from credit cards. Studies show definitively that shoppers spend more in stores when they have a credit card than when they pay cash. Total sales volume tends to be higher for stores that accept credit cards.
Maybe maybe not, but the credit cards cost merchants more to accept, and the rewards programs (which interchange fees pay for) end up persuading customers to payment options -- signature credit cards -- that cost the merchants more. Not to mention, if you use a card on a purchase that's only a few dollars, merchants are going to lose money. Or at best, break even.
But you don't have to take my word for it. Despite their perfidy otherwise, the WSJ apparently felt obligated enough to give space in their pages to Rep. Conyers and his co-sponsor, Chris Cannon, to respond. It's worth reading:
Americans pay nearly three times as much on average as Europeans in credit-card interchange fees for the same set of services -- nearly 2% of every retail purchase. This amounts to nearly $36 billion imposed on consumers through higher retail prices. And the interchange fee is the largest credit-card fee of all -- dwarfing credit-card late fees, over-the-limit fees, balance transfer fees, annual fees, inactivity fees, penalty interest fees, and even ATM bank fees.
Yet the editorial says the market will ride to the rescue and bring down excessive credit-card interchange fees. That is unlikely unless there are negotiations and proceedings as set forth in our legislation. In an economy in which, as the Journal notes, credit transactions are now king and cash has been dethroned, how can the vast majority of merchants turn down plastic from the two major credit-card companies, who control approximately 80% of the market?
We introduced the Credit Card Fair Fee Act to create an open and transparent environment that doesn't exist today, one that will not only spur the major credit-card companies to negotiate fairly on interchange but also to provide the opening for lower-cost interchange credit-card brands. Our bill would lead to competitive market-based interchange rates and terms.
The bill isn't asking for the fees to be directly reduced. All it asks for is a seat at the table, and the chance to work it out. But Visa and MasterCard don't want that. The WSJ doesn't want that either. It's a shame they can't tell the truth about it.