For almost 20 years, the credit card payments industry has been under attack from some elected officials who seek price controls on interchange fees. These lawmakers argue that capping interchange fees will help small businesses and lower prices for consumers.
However, the reality is that the burden of lower interchange fees will fall on the consumer in the form of drastically reduced rewards, security upgrades, and credit access. Interchange fees are not a tax; they are the price of processing credit card transactions.
Whenever you buy something from a store with a credit card, that business pays an interchange fee to a credit card company. This fee is usually between 2% and 3% and pays for transaction processing, fraud protection, and credit card rewards programs.
In Australia and the European Union, where the government imposed interchange fee caps, rewards programs were slashed almost immediately. When debit cards interchange fees were tightly capped in the United States in 2010, banks reduced or removed free checking accounts, zero liability protection, and debit card rewards programs. And these caps failed to reduce consumer prices—a study published by the Federal Reserve of Richmond showed that only 1.2% of merchants reduced prices after the debit interchange caps were implemented, while 21.6% raised prices.
Reduced interchange fees mean fewer benefits for cardholders, cancelling out any theoretical gains from lower prices. Additionally, lower interchange fees would likely reduce investment by credit card network providers in fraud protection and secure networks.
As taxpayers, we should be wary of government interventions that promise short-term savings at the expense of long-term value. Consumers have options, businesses have negotiating power, and competition between banks ensures that the market for credit cards works. Banning interchange fees could undermine a safe and trustworthy transaction system that benefits everyone.
For more context on interchange fees, check out the NTU articles below:
Don’t Mess with My Miles: Why Government Shouldn’t Ban Credit Card Interchange Fees (September 2024)
Pa.’s swipe fee cap — more harm than good for small businesses (July 2024)
NTU Opposes Pennsylvania Interchange Fee Price Controls (June 2024)
Congress’ War on Interchange Fees Is Bad for Taxpayers and Consumers (December 2023)
Interchange Fee Ban is Bad for Consumers and Taxpayers (April 2023)
Durbin’s Swipe at Credit Cards Will Mean Black Eye for Consumers (April 2022)