Crocodile Tears From the Credit Card Industry

[ProSense]

Crocodile Tears From the Credit Card Industry

—By Kevin Drum

The Wall Street Journal reports on the latest middle finger from the credit card industry:

Just two months after one of the most controversial parts of the Dodd-Frank financial-overhaul law was enacted, some merchants and consumers are starting to pay the price. Many business owners who sell low-priced goods like coffee and candy bars now are paying higher rates—not lower—when their customers use debit cards for transactions that are less than roughly $10.

That is because credit-card companies used to give merchants discounts on debit-card fees they pay on small transactions. But the Dodd-Frank Act placed an overall cap on the fees, and the banking industry has responded by eliminating the discounts.

"There will be some unhappy parties, as there always is when the government gets in the way of the free-market system," says Chris McWilton, president of U.S. markets for MasterCard Inc.

The sheer gall on display here is just mind-boggling. If card companies were really interested in a free market, they'd remove the clause in their standard contract that prevents merchants from charging higher prices on credit and debit card transactions. Merchants would then be free to pass along swipe fees to their customers or not as they saw fit, and the free market would determine the outcome. But they've resolutely refused to do that, and since Visa and MasterCard are an effective monopoly, merchants have nowhere else to go.

Over the past decade, Visa and MasterCard have spent billions of their marketing dollars on commercials like the one on the right, trying to persuade people that only a real self-centered bastard would so much as think of using cash for a small purchase these days. This worked largely because merchants didn't fight back. But now that the marketing campaign has successfully trained consumers to whip out their cards for anything more expensive than a candy bar, and it's too late for merchants to do anything about it, the fees go up.

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[dkf]

1. Irony is capping the fees has also made it impossible for anyone to get in to compete.

It's not cheap to set up an entire system like this. Dodd Frank has almost guaranteed the current players are the only players. Jokes on us.

[ProSense]

3. That's

"Irony is capping the fees has also made it impossible for anyone to get in to compete."

...absolute nonsense. The only people upset by this are the banks.

[dkf]

4. Someone told me that Dodd Frank caused Google to stop trying to create their own network.

Now they're partnering with Visa or MC for Google Wallet, can't remember which. But that was specifically in response to Dodd Frank.

So you had a deep pocket who may have been interested in competing, but not anymore.

[ProSense]

5. Right

"Someone told me that Dodd Frank caused Google to stop trying to create their own network. Now they're partnering with Visa or MC for Google Wallet, can't remember which. But that was specifically in response to Dodd Frank."

...because Google is the little guy?

What exactly are you arguing: that there should be no cap on fees so that Google can profit by doing what the credit card companies do?

[dkf]

6. You've frozen the barriers to entry in place. Apparently it's a very expensive proposition to do

this from scratch.

Without DF, google could have found a model that worked. Now they are restricted so they gave it up. The person that told me this was explaining why MC and Visa were now set. To tell you the truth cynical me was wondering if MC and Visa actually lobbied for this.

[ProSense]

8. It's

"Without DF, google could have found a model that worked. Now they are restricted so they gave it up. The person that told me this was explaining why MC and Visa were now set. To tell you the truth cynical me was wondering if MC and Visa actually lobbied for this."

...time to start questioning that person's judgment. The argument is bogus.

[dkf]

10. Why? You had a whole lot of smart phone types who were about to get into this area.

Now VZ wants to restrict google wallet presumably so they can do their own money transfer app.

It makes sense to me.

[ProSense]

11. And

"Why? You had a whole lot of smart phone types who were about to get into this area. Now VZ wants to restrict google wallet presumably so they can do their own money transfer app."

...preventing the industry's predatory activities in the form of excessive fees means they're not going to?

Good! If their only motive is excessive profits, then that's too bad. You wank to cry over banks making $7.5 billion instead of $8 billion per quarter in profits, claiming that they're suffering and the market is being stiffled. That's a completly bogus argument.

[dkf]

12. It's predatory if the system is already set up, a cash cow. It's not predatory if it is part of the

Cost of doing/starting a new business line.

In a way the higher fees would have allowed a new competitor to step in and then lower fees. But no, now we've made it too expensive.

Again, barriers to entry, and it couldn't have come at a better time when a whole lot of new players are looking to move in this area.

You have to look at it from the point of where we are going, not where we were or are in order to get what I am talking about.

[ProSense]

14. This

In a way the higher fees would have allowed a new competitor to step in and then lower fees. But no, now we've made it too expensive.

Again, barriers to entry, and it couldn't have come at a better time when a whole lot of new players are looking to move in this area.

...makes no sense. In fact, it's ludicrous.

[bhikkhu]

7. Any product at a lower cost can compete

...unless you're suggesting that the previous high fees assessed here by all the companies reflected the actual costs of business and fair competition. Which is a bit ridiculous, really.

[Lisa D]

2. I stopped using credit cards

It takes their power away and I'm not tempted to buy more than I can afford. Unfortunately, I learned this the hard way.

[great white snark]

13. Me too.

Also switched over to credit unions for my banking. Big banks bankroll Republicans.

[HillWilliam]

9. "'O Oysters,' said the Carpenter,

'You've had a pleasant run!
Shall be be trotting home again?'
But answer came there none --
And this was scarcely odd, because
They'd eaten every one."