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TOTM I will focus my blog post on one of the proposals for reducing interchange fees: the requirement that the fees be disclosed to consumers. I . . .
I will focus my blog post on one of the proposals for reducing interchange fees: the requirement that the fees be disclosed to consumers. I am not sure how seriously this option is taken by the GAO report. Indeed, the report concedes that mandated disclosures in this context are not very likely to be effective, because “consumers are likely to disregard this kind of information.” But I will not be surprised if, of all the regulatory options discussed in the report, in the end it will be the disclosure rule that is enacted.
Read the full piece here.
TOTM What is most surprising about the GAO report is how little the analytical discussion of this subject has advanced in the last decade. We all . . .
What is most surprising about the GAO report is how little the analytical discussion of this subject has advanced in the last decade. We all know that interchange rates might contribute to higher retail prices: customers that use cheaper payment products can be said to “subsidize” customers that use credit cards. Starting with the Australian initiative, regulators for a decade have sought to understand the costs of credit-card processing and to push interchange fees down to the “competitive” level of the “costs” of providing the service. Conversely, economists writing about two-sided networks have shown that the focus on costs reflects a fundamental misunderstanding of the two-sided network, in which the interchange fee is an allocation of burden between merchants and cardholders, not a charge for services rendered to one side or the other.
TOTM What happens when you take a key price in an industry and cut it in half? For normal markets economists would expect that this would . . .
What happens when you take a key price in an industry and cut it in half? For normal markets economists would expect that this would have a dramatic effect on quantity. That, however, was not the experience in Australia when the Reserve Bank of Australian (RBA) used new powers in 2003 to move Visa and MasterCard interchange fees from around 0.95 percent of the value of a transaction to just 0.5 percent. The evidence demonstrates that this change was virtually undetectable in any real variable to do with that industry.
TOTM Although the mechanisms vary, legislation pending before Congress on interchange has a basic central purpose—to reduce interchange fees, either indirectly or directly. If adopted, these . . .
Although the mechanisms vary, legislation pending before Congress on interchange has a basic central purpose—to reduce interchange fees, either indirectly or directly. If adopted, these efforts will likely succeed in their intended goal of reducing interchange fees. But they will also likely have substantial unintended consequences that will prove harmful to consumers and competition and will roll-back the innovation in the credit card market over the past two decades.
TOTM Professor Adam Levitin is not impressed by our prediction of the effect on consumer credit of the CFPA. Readers might recall that, using estimates from . . .
Professor Adam Levitin is not impressed by our prediction of the effect on consumer credit of the CFPA. Readers might recall that, using estimates from the literature on the effect of regulatory shocks on interest rates and of the long-term debt elasticity, we offered a (in our words) “rough calculation” of the “lower bound” of the effect of the CFPA Act on consumer credit at 2.1%. Professor Levitin says that we just “make up the numbers” and that they do not pass the “straight-faced test.” In his paper (and second blog post) Professor Levitin offers more of the same formula: a combination of assertions unsupported by evidence, ad hominem attacks, and insistence to his prior assumption that the CFPA will reduce the cost of credit without imposing serious regulatory costs (again, without substantiation). He writes that his real problem with our analysis is that “The key point here, however, is the impact of the legislation is speculative and certainly not susceptible to precise statistical predictions.”
TOTM Steve’s post responding to me and Josh on antitrust exemptions and buyer cartels raised a number of interesting issues. A few points in response… Read . . .
Steve’s post responding to me and Josh on antitrust exemptions and buyer cartels raised a number of interesting issues. A few points in response…
TOTM Geoff mentions the pending bills on the Hill that would grant merchants an antitrust exemption to negotiate interchange fees. The insurance industry exemption has also . . .
Geoff mentions the pending bills on the Hill that would grant merchants an antitrust exemption to negotiate interchange fees. The insurance industry exemption has also been in the news of late in the wake of the Democrats’ threats of repeal. Here’s what I’m puzzled about. Other than self-interested parties that have a lot to gain from an exemption (I’d like an exemption from income taxes if anybody cares), why won’t anybody say that industry exemptions from the Sherman Act price-fixing prohibitions are decidedly not a good thing for consumers?
TOTM My co-author on this paper on The Effect of the CFPA Act of 2009 on Consumer Credit, David Evans, has a great post over at . . .
My co-author on this paper on The Effect of the CFPA Act of 2009 on Consumer Credit, David Evans, has a great post over at Catalyst Code on the importance of access to consumer credit during tough financial times. Here’s the key paragraph…
