"Man holding credit card. Top view from above." by Nenad Stojkovic is licensed under CC BY 2.0 https://www.flickr.com/photos/nenadstojkovic/

On November 25, 2023, the Tampa Bay Times published an op-ed authored by ATR’s president, Grover Norquist, and The James Madison Institute’s senior vice president, Sal Nuzzo. The op-ed critiques the Florida legislature’s consideration of a policy proposal that would prohibit interchange fees—service fees incurred for using credit and debit cards—from being applied to the full amount of an electronic payment transaction. This big-government mandate would negatively impact the efficacy of consumer fraud protections as well as rewards programs. The op-ed discusses how the policy proposal would harm consumers and why it is the complete opposite of free market policy.

Previous big-government legislation, such as the Dodd-Frank Act, regulated debit card interchange fees and harmed consumers. The op-ed explains that:

The legislation now being pushed (again) in Tallahassee parallels the big government provisions of the “Dodd-Frank” bill that Democrats passed in Washington in 2010. After Dodd-Frank took effect, more than 20% of merchants raised prices, and only 1% lowered them. According to a study conducted by the University of Chicago, after Dodd-Frank, consumers lost between $22 billion and $25 billion.

The article goes on to explain why the proposed legislation is a veil for expanded government intervention in an already well-functioning market:

The legislation gives merchants leeway by allowing them to bill banks or credit unions up to six months after the electronic transaction occurred. This clearly is the government siding with one industry over another. This is pure rent-seeking policy that empowers the state government to dictate service fees negotiated between private parties. There is no current market failure this is solving.

An interchange fee is not for public or governmental use. It is a fee negotiated between private parties. The fee is used to allocate revolving lines of credit, improve privacy and fraud protection and pay for rewards programs. Removing sales tax from the calculation of the interchange fee is not a tax cut; it is a way for special interest groups to pad their pockets.

Government-mandated price control like this is anathema to the foundational principles of free-market enterprise in the United States.

Consumers will lose under these types of policies. In fact:

Amid all this fighting, consumers — the ones who stand to lose the most — are forgotten. Consumers will not receive savings if these proposals are enacted. Ultimately, 22 million hard-pressed Florida consumers and 137 million annual visitors to the state will pay the price.

By dictating the amount private companies can charge for interchange fees, the proposed law will ultimately harm critical dimensions of payment processing including cybersecurity protections of consumer data as well as rewards programs that run the risk of being scaled down or scrapped. The piece points out that:

The Florida proposals also make it harder for financial institutions to implement improved cybersecurity protections for consumer data, because the policy will reduce interchange fee revenue that is used for fraud protection technology, such as tokenization.

Additionally, the proposal makes it more expensive to fund rewards programs and co-branded cards that offer airline points or sky miles to consumers. These extra costs will undoubtedly result in higher costs for consumer services or an elimination of services altogether.

Click here to read the full op-ed.