Congress can stop credit card companies from crushing small businesses
Choice. Competition. Cost reduction.
These are things that everyone wants in today’s economy. Yet when it comes to credit card fees, they’re nowhere to be found — and they’re crushing small businesses and their customers. Main Street and millions of families across the country are counting on Congress to right this wrong. The future of small businesses and the communities they anchor would benefit.
The credit card fee crisis has been building for years, but in the wake of the pandemic, it’s worse than ever. Small businesses and customers are reeling from inflation, with price increases the inevitable result of labor shortages and supply chain issues. Amid these terrible challenges, huge credit card companies have shockingly decided to increase the fees they charge small businesses and customers. This adds insult to inflation at the worst possible time, which costs money that Main Street needs to survive.
Credit card companies have more than doubled “swipe fees” over the past 10 years, with the latest painful increases coming last April. You might be wondering: how can they get away with this brazen assault on small businesses? The answer is simple: there is no real competition in the credit card market.
Consider what happens when someone swipes their credit card at a family store. The credit card company charges them two separate fees that small businesses have no control over.
To start, they have to pay a fee for the “network” that connects the small business bank to the credit card bank. The credit card company controls the network and is not required to offer any other choices. Small businesses are forced to pay whatever the credit card companies require.
If that’s not enough, credit card companies also set “interchange” fees, also commonly known as swipe fees. These are usually the highest credit card fees, often costing 3% or more of a transaction, and the money goes directly from a small business to a bank. It’s a double mistake: Not only does a small business have no choice, but the credit card company is a third party that controls what Main Street pays Wall Street.
You read that right: credit card companies set the rate small businesses must pay banks. Somehow individual banks can’t decide what a merchant should pay them for using a credit card and have to have their rates set by the credit card companies? It does not pass the smell test.
In a competitive market, a business should not dictate what one business should pay to another unrelated business. It is the only marketplace in the world where the two largest competitors in a marketplace can announce the same “interchange” fee increase, at the same time, on the exact same day. This market is broken and has led to small businesses being scammed by some of the biggest credit card companies and banks in the world.
These skyrocketing fees are pushing countless small businesses to the brink. Still, there’s really no way to push back. Small businesses are just that — small — so they don’t have the power to negotiate with huge credit card companies. That’s why Congress should step in immediately, providing the competition and choice that will lead to lower costs.
Currently, Congress is considering bipartisan legislation called the “Credit Card Competition Act of 2022”. Credit card companies would need to offer at least two networks on each credit card, which necessarily means offering different fee structures. For the first time, small businesses would have multiple options to choose from and could choose the most affordable option. Plus, credit card companies should finally compete for business, just like small businesses have to compete for customers.
This should have happened a long time ago. The Credit Card Competition Act of 2022 and Congress should ensure that it finally happens now. If the status quo continues, the struggles on Main Street will continue to escalate, stifling the economic recovery of small businesses. This is the last thing America needs, so Congress should prioritize cutting costs and increasing the choices small businesses deserve and demand from customers.
• Jeff Brabant is Director of Federal Government Relations at the National Federation of Independent Business.