Monday, April 29, 2013

Credit Card Fees

Whenever a special interest starts off with "To protect consumers," you know that they are ready to demand by government legal force what they couldn't get by voluntary agreement in the market.

In Price-Fixing, Not Swipe Fees, is the Real Problem, John Holub, president of the New Jersey Retail Merchants Association, takes issue with a bill in the NJ Legislature "that will prevent merchants from adding charges to their customers’ bills to cover the hidden and excessive swipe fees that Visa and MasterCard set for all the banks that issue their cards." Presumably, the added charges would apply to purchases made with a credit card, as opposed to cash transactions. The alternative would be for the merchant to factor the fees into the overall price structure of the products he sells so that there is no price differential between credit card and cash purchases.

Fair enough. The problem is, Holub doesn't take a principled stance against this immoral government intrusion into the market. He demands that, instead, the legislators violate voluntary private contractual agreements:

   Visa and MasterCard each individually set the fees their banks will charge. The banks under each umbrella then agree to charge the same fees and not compete. That’s price-fixing — something that the rest of us are prohibited from doing.
   By focusing only on the credit card surcharge, we are stacking the deck against both merchants and consumers and, in effect, helping the banks and credit card companies maintain their stranglehold on the swipe fee. Unless our lawmakers rein them in and stop the price-fixing, the anti-competitive and closed system they have created will continue to prevent merchants from thriving and consumers from benefitting from lower prices.

Holub justifies his call for the violation of contract rights by inverting the meaning of "price-fixing." Price-fixing is the arbitrary setting of prices by force; i.e., by legislative fiat. In the case of credit card fees, there is no force involved. Visa's and MasterCard's fees, conditions, and terms are established by voluntary agreement between them and the banks. Consumers voluntarily agree to use the cards, and merchants voluntarily agree to accept them in payment for their merchandise, thus implicitly agreeing to the fees, conditions, and terms. 

None of this is "price-fixing." If it is, then every sale large and small--including at any merchant's checkout counter--is price-fixing, and the term loses all meaning.

Holub has no business demanding government intervention because he thinks the fees "are too astronomically high." There's only one way to make that determination; the cumulative choices of buyers and sellers--i.e., the market. Visa and MasterCard created wildly successful products that facilitate trade across the economy, and thus wildly and justly profit from them. If the fees were "too high," banks, consumers, and merchants would figure out that they are better off without the cards, and either turn to other credit cards or to cash. Visa and MasterCard have no way of forcing their fees on others--no power to arbitrarily set the price--because they have no power to force anyone to use their products.

Cronyism is rampant in our mixed economy, and it's possible that Visa and MasterCard are supportive of the bill to forbid swipe fee surcharges, which violates the rights of merchants. That doesn't justify Holub's call to violate the rights of Visa and MasterCard. The legislature should not interfere on behalf of credit card companies, banks, merchants, or consumers. It should simply protect individual rights equally and at all times, including the rights to voluntary contract among all economic participants. This is the basic principle inherent in the capitalist system; the separation of economics and state, or strict governmental neutrality in regards to economic activity.

Related Reading:

B of A's Debit Charges: It's About More Than Fees

B of A Rescinds Debit Card Fees

3 comments:

Mike Kevitt said...

But, under capitalism, everybody needs to know all pertinent things about what they're buying & selling. That takes significant work & brains in addition to what it takes to just make things so they can trade for other things, not to mention understanding money and not just using it. Some people just can't do all that very well. That's a big source of the whole notion of collectivism, force, statism.

But, under FULL capitalism, ways can be found to make it easier and affordable. The educational effort must make everybody understand that Full capitalism enables all kinds of ways to deal with all the objections antagonists raise against it.

Capitalism must be PHASED in, not fully established overnight. People must understand that, but they must also understand that the phases ARE leading to the full, real thing. They must realize they have to get used to it, in phases, up to & including the full, real thing.

If they complain that they're being forced, they should be told the truth that they're just being accorded their rights & freedom, and that 'resistance' by them is initiatory force by them which will be met by retaliatory force, meaning, by law & government.

Making all this clear should be part of the educational process, with appropriate action ensuing when appropriate.

Mike LaFerrara said...

The key is "pertinent things." Why should I care what "hidden" card fees are included in the price of the merchant's products, any more than I should care about the "hidden" cost of cleaning supplies, employee salaries, or utility bills the merchant incurs? I would be concerned with the final price of the product, its quality and reliability, and the reputation of the merchant. Reputation and trust of the merchant and/or private 3rd party accreditation firms like UL or Zagat convey a lot of implied info.

Most people can assimilate info well, otherwise there would be no market at all. As to the few who can't (or won't bother) to assimilate and assess pertinent info, they still benefit by the tendency for quality to rise and prices to fall facilitated by the market because of people who can and do.

Mike LaFerrara said...
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