US Credit Card Act tanks

… and Visa and MasterCard share prices rise. That is the news today when proposed ‘Australian-like’ regulations of credit card associations were amended.

The first amendment was that the Fed wouldn’t be able to regulate network charges alongside interchange fees. Actually, that amendment is fairly innocuous as arguably, the interchange fee cap should apply to just that rather than other charges. It is good to see that lawmakers were aware that there was a potential to use other charges as a workaround but that seems adequate.

The big problem with the amendment is that while it allows merchants to discount based on payment instrument — check versus credit card — it doesn’t protect them from card association rules that prevent discounting based on the card brand itself. So if Visa had a high interchange fee relative to MasterCard, the merchant can’t pass on those higher costs to consumers. This means that price signals are distorted but more seriously that Visa and MasterCard can’t compete with one another on that side of the market. There is no point discounting if consumers don’t see it and you don’t get more transaction volume as a result. This means that the interchange fee regulation will do all of the work in controlling the industry. This seems like a heavy handed approach that doesn’t enable a well functioning payments market. Little wonder that their shares are rising as it appears almost akin to (that is functions like) a license to collude.