Just over a year ago, Senator Dick Durbin snuck an amendment into the legislative monstrosity, the Dodd-Frank financial "reform" bill. Durbin's amendment ordered the Federal Reserve to set a government price control on fees paid by merchants to banks for using credit and debit cards. The price control language was never considered in hearings and the most liberal Congress in our lifetime certainly never consulted conservatives in the House. In July, if conservatives in Congress fail to act, the Obama Administration and Ben Bernanke will set the prices of debit card interchange fees rather than the free market.
We know the problems that government price controls create. Big-government answers to issues that should be determined by the free market are never meaningful solutions. At a recent debate hosted by the Republican Study Committee, I told lobbyists for the National Retail Federation and the Merchants Payments Coalition, supporters of the price control, that whenever you run to Congress to pick winners and losers, you will make things worse.
Card issuers, if faced with lower interchange fee revenues, could decide that some credit card programs are too expensive to maintain and might cut credit to cardholders, including merchants and small businesses that depend on credit to finance business expenses.
The price controls could lead to less credit cards being issued, which hurts consumers and would lead to decreased sales for merchants.
Even Federal Reserve Chairman Ben Bernanke admitted that the price control could cause community and rural banks to fail.
As Cabela's Chief Financial Officer, Ralph Castner, has astutely pointed out: "Obviously the concern is once you get the government in the middle of setting pricing in any industry, that feels like a bad thing and how long until it will creep into credit?"
I was appalled when one of the lobbyists for the merchants even suggested having the government break up Visa and said that the merchants would be with him. I came to Congress as a small businessman to oppose arrogant activist government policies that think they know best. These price controls that Dick Durbin and his lobbyist friends drafted are just that.
Recently, I sent a letter to Dick Durbin that urged him to support the free-market principles in which he allegedly believes. With the news last week that there will soon be a Senate vote on S. 575, a bill to slow down and delay Durbin's market intrusion, a decision point approaches for Senators (and House members soon thereafter) to prove their respect for the free marketplace. I urge my conservative colleagues in the House and Senate to stand with me and oppose these big government price controls. They must be stopped before it's too late.