Dear Member of Congress:
On behalf of National Taxpayers Union, the nation’s oldest taxpayer advocacy organization, I write to reiterate our Strong Opposition to the Credit Card Competition Act, as well as efforts to impose a federal cap on interest rates. We believe that either policy would be an even larger and more damaging government intrusion into consumer credit markets than the Dodd-Frank Act of 2010. We urge you to stand for free markets and limited government by rejecting these new mandates.
As you know, there is renewed attention to credit cards given the real affordability concerns facing American families. Many of President Trump’s policies reining in government spending, regulations, and taxes have made an immediate and meaningful difference for people’s pocketbooks. Gasoline prices in particular are approaching a five-year low thanks to removing so many government barriers that needlessly increased drilling, refining, and transportation costs.
American families benefit when the government takes a step back from micromanaging the economy. Government-mandated price controls are the opposite of what’s been proven to actually drive down prices.
Price controls have never worked and often exacerbate problems they were supposed to solve. Whether for gasoline, rental housing, interchange fees, or prescription drugs, setting prices at below-market rates leads to shortages, squeezes the cost bubble toward some other portion of the economy, and imposes a deadweight cost on society.
The appeal of price controls is understandable, since interest can often be another added cost that makes credit expensive, particularly for lower-income Americans. Yet, interest rates are an incredibly important pricing tool for lenders that allows them to price in all their fixed and unforeseen costs. Factors such as the lender’s costs and risks, investments into network security, consumer demand for credit, and an individual’s credit history all affect how expensive or inexpensive credit will be, or if credit is offered at all.
Price controls ultimately take pricing power out of the hands of the lenders and consumers who make up the free market, and place credit decisions under the domain of the federal government.
The impacts on the payments industry will be no different. If a rate cap or the Credit Card Competition Act is signed into law, there will be wide-ranging negative impacts for consumers. They may include:
Reduced access to credit. Some estimates indicate 90% of credit cards would become unprofitable for businesses to operate, meaning there could be a clamp down in credit availability for most consumers. This would make it difficult for working class Americans to handle an unexpected expense if they don’t have enough funds in their bank account.
Higher fees. Capping credit card interest rates would likely push issuers to recoup lost revenue through other means, including higher annual fees. As a result, consumers—especially those who pay their balances in full—could end up paying more just to keep a card, which ironically would cost consumers more.
Fewer rewards or points. Interest rate caps or routing mandates would also make generous credit card rewards programs harder to sustain, leading issuers to scale back points, miles, and cash-back offers. Consumers could see fewer rewards and less value from everyday spending as banks offset revenue losses.
To be clear, it is difficult to fully gauge just how the market would react to a complete unwinding of America’s credit card system. But with four-in-five adults owning a credit card, it is important to proceed carefully and not break a system Americans overwhelmingly enjoy. The risks to the system far outweigh any potential benefit. To that end, Congress should be wary of further price controls on debit cards and other forms of consumer credit, including short-term small dollar loans which may become more popular in the event of a consumer credit freeze.
Big government schemes intended to “help” people would actually harm low-income and low-credit consumers. Congress has a long history of imposing regulations intended to help low-income Americans that end up causing economic pain—and it should not repeat that mistake with these additional price controls. Americans should have the freedom to make the financial choices they deem necessary for their own situation, and lawmakers should not restrict this choice.
We urge you to stand with taxpayers, businesses, and consumers by supporting free market lending and rejecting government-imposed price controls.
Sincerely,
Thomas Aiello
Senior Director of Government Affairs