Visa and Mastercard by Nick Youngson is licensed under CC BY-SA 3.0

On February 28, 2024, The Hill published an op-ed authored by Americans for Tax Reform’s Bryan Bashur and Tom Hebert. The article discusses the pitfalls of the Credit Card Competition Act (CCCA). Innovation and consumer welfare are byproducts of a healthy and competitive free market—not regulations implemented by the Federal Reserve (Fed). The Capital One and Discover merger is a perfect example of the benefits of unleashing the full potential of free market competition. Enacting CCCA would only distort the market by handing the Fed more authority to regulate credit cards.

The op-ed talks about how the CCCA will wind up harming small businesses by reducing their access to credit: 

“To say the Credit Card Competition Act will help small businesses is also false. According to one paper, small businesses will largely lose access to $700 billion in revolving lines of credit and may lose more than $1 billion in rewards.” 

The CCCA also targets two specific companies in a shortsighted attempt to determine market outcomes. However, despite the overreach in policy, the bill would not regulate all market participants equally, calling into question the efficacy of the bill itself in achieving its desired goals. According to the article:  

“The act was clearly designed to target only Visa and Mastercard — which is disgraceful for Congress to target specific companies — but if down the road the merged entity ends up with the second largest market share, the bill would prohibit the combined entity and Visa from providing their networks on the same credit card. At the same time, banks that own networks, such as Discover and American Express, are exempted from the bill’s provisions. The bill would contradict itself.” 

The article goes on to highlight the significance of consumer welfare when evaluating pricing in markets. In a legal case involving American Express, the Supreme Court found that Amex’s card fees reflected the value of the services provided to consumers. Prices determined by businesses in healthy markets are indicative of a commitment to providing value to consumers. The article explains that:

“Consideration of the consumer welfare standard is of paramount importance. In 2018, the U.S. Supreme Court ruled on a case where Justice Clarence Thomas pointed out that a credit card “is more valuable to cardholders when more merchants accept it and is more valuable to merchants when more cardholders use it.”  

The court found the fee charged by American Express was not “higher than the price one would expect to find in a competitive market.” Moreover, the court found that “Amex’s increased merchant fees reflect increases in the value of its services and the cost of its transactions, not an ability to charge above a competitive price.”  

In this case, an increase in fees did not restrict output and consumers were not in a worse position. This is evidence of a healthy market, not one that needs the Credit Card Competition Act.” 

The article concludes with a reminder that free market competition benefits consumers. Giving more authority to the Federal Reserve to regulate the credit card market will only backfire.  

“If regulatory barriers do not stand in the way, free market competition will find a way. Credit card competition is a product of creating shareholder value and finding opportunities to generate supply to meet the demand for electronic payment cards that offer rewards, privacy protections and easily accessible lines of credit. 

Instead of fostering competition, Congress will kill it by handing the reins to the Fed. The free market is the answer.” 

Click here to read the full op-ed.