Congressional Price Fixing - H.R. 5546

These guys just hate competition. In fact they almost hate it as much as corporate profits. That is about the only reason I can come up with for their support of H.R. 5546, the Credit Card Fair Fee Act of 2008. And you can't blame the idiocy on the Democrats exclusively. Of the 14 sponsors, 9 are Republicans who evidently suffer from some sort of Economics 101 dementia.

What is proposed here is Congress deciding what the "interchange fee" should be for credit card purchases. That is the fee that credit card companies rake off of the purchase of every credit card sale. Currently it is about 2%. The Wall Street Journal addresses this bill in "Credit-Card Wars." It writes:

The merchants contend this political muscle is needed because banks collude to set interchange fees and because Visa and MasterCard control so large a share of the market that they can effectively set prices. And it may be true that the credit-card companies are setting prices higher than in a perfectly competitive market. The Visa interchange fee has increased over the past decade to 1.76% from an average of 1.5%. Economies of scale should be driving fees down, as in most other service-fee industries.

But an equally strong case can be made that Visa and MasterCard have attained their market share and profits because they've built an efficient and superior product through a vast network of cardholders and banks. No one should want the precedent of punishing a business for winning huge numbers of voluntary customers by outcompeting rivals.

Some things never change and the idea that Congress should set the price of the "interchange fee" is just one more example of a government out of control. One thing can be counted on when the government gets involved like this ... there will be unintended consequences and the consumer will get to pay for all of them.