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Price Controls Don’t Work

Heritage Foundation senior research fellow James L. Gattuso’s recent op-ed discusses the ongoing battle over interchange fees:

Today’s consumers take credit cards pretty much for granted. Once used only for major purchases, Americans now use the cards routinely, for even the smallest of purchases.

It’s been a plastic revolution that has made life easier for millions of consumers. But the cards have sparked numerous hard-fought political and legal battles as well. Merchants have long grumbled that the “interchange” fees they pay for processing credit card transactions are too high.

For the last seven years, a class-action lawsuit aimed at lowering these fees has percolated through the courts. Last summer, a settlement was reached, under which the lawsuit would be dropped in exchange for, among other things, $7 billion from the defendants. But many retailers still aren’t happy with the outcome — and are urging the deal be scuttled.

They want court-imposed controls on the practices and fees of credit card firms and the banks that actually issue the cards.

As we wrote about in our recent study, “How Dodd-Frank Price Controls Poach Peach State Prosperity,” retailers first convinced Congress to add price controls to the Dodd-Frank legislation and it has had unintended consequences on consumers and small community banks. Now after a massive court settlement, some parties are fighting to keep the litigation going.

Price controls always have unintended consequences. Investing in innovation to reduce costs for consumers would be more effective than spending millions of dollars on lobbyists and trail lawyers.