Why Congress should pass the Credit Card Competition Act | Opinion

Following the midterm elections, a renewed roster of lawmakers is headed to Washington to represent Tennessee. One problem policymakers need to address are the high credit card transaction fees that are costing business owners — and their consumers — big time.

As the President of EZ Stop Food Marts, a convenience store chain located in the eastern part of the state, I’ve experienced the financial headache firsthand.

What’s the problem? Currently, Visa and Mastercard, two large out of state corporations headquartered in California and New York, are working alongside huge banks to restrict competition and inflate the fees merchants pay every time a customer uses a credit card at a payment terminal.

Nicknamed swipe fees, these charges are the largest business expense I have, second only to my employees’ paychecks and benefits. When fuel prices escalate as they have and surely will again, Visa and Mastercard make more than I or my employees do.

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Swipe fees are passed along to consumers

Last year, my modest Tennessee business shelled out more than $2.8 million in swipe fees. Nationwide, credit card companies and banks collect nearly $140 billion annually—money that comes from every restaurant you eat at, every grocery store you frequent, and every dry cleaner, florist, hardware store, and repair shop where you use a card.

And to the detriment of our customers, those swipe fees are passed along in the form of higher consumer prices. It’s estimated that the average family pays an additional $900 a year because of the swipe fee scheme.

Charging a reasonable fee for services rendered is warranted; after all, credit cards provide a service that Americans value. But leveraging a controlling market share to profiteer on the backs of merchants that are just scraping by is not. Visa and Mastercard enjoy 51 percent and 45 percent profit margins after tax respectively. Compare that to Casey’s General Store — a publicly traded company with three percent net profit margins.

You see, unlike other areas of the U.S. economy, the credit card industry lacks competition. Because Visa and Mastercard control roughly 80% of the market, the typical competitive pressure that keeps prices under control is severely restricted. As a result, “swipe fees” are left to increase unchecked. And merchants have no other option but to sign up for the raw deal and swallow the costs.

Free market principles will help Tennesseans

While technology and innovation have driven the cost of managing card transactions down, swipe fees have more than doubled over the past 10 years — gouging businesses and Tennessee families in the process. Most recently, Visa and Mastercard proposed an increase in fee levels this past April. To give a comparison, swipe fees in other countries are half the rate we pay here in the U.S.

The Credit Card Competition Act, which our elected leaders in Washington currently have before them, is an opportunity to help rein in these high swipe fees. The bill, as proposed, will reset the credit card market to benefit merchants and consumers by fostering transparency and competition.

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More specifically, the legislation will require big banks with more than $100 billion in assets — a threshold that doesn’t include any Tennessee-based community banks — to give merchants more options on how to process the cards issued to their card users. There are alternatives to Visa and Mastercard that offer the same service minus the high-way robbery of their present-day fees. A framework where credit card companies compete for market share on an even footing will allow those swipe fees to decrease.

Tennessee has thrived because of the prosperity free market competition creates. This legislation will apply those same principles to an industry that so desperately needs it — helping businesses and Volunteer State families in the process.

Tommy Hunt is the President of EZ Stop Food Marts based in Maryville, Tennessee—a family business that goes back three generations.

This article originally appeared on Nashville Tennessean: Why Congress should pass the Credit Card Competition Act