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ICLE White Paper Summary Fresh off of the most substantial national liquidity crisis of the last generation and the enactment of sweeping credit card regulation in the form . . .
Fresh off of the most substantial national liquidity crisis of the last generation and the enactment of sweeping credit card regulation in the form of the Credit CARD Act, Congress continues to deliberate, with a continuing drumbeat of support from lobbyists, a set of new regulations for credit card companies. These proposals, offered in the name of consumer protection, seek to constrain the setting of “interchange fees”— transaction charges integral to payment card systems—through a range of proposed political interventions. This article identifies both the theoretical and actual failings of such regulation. Payment cards are a secure, inexpensive, welfare-increasing payment mechanism largely unlike any other in history. Rather than increasing consumer welfare in any meaningful sense, interchange fee legislation represents an attempt by some merchants to shift costs away from their businesses and onto card issuing banks and cardholders. In particular, bank-issued credit cards offer a dramatic improvement in the efficiency and availability of consumer credit by shifting credit risk from merchants onto banks in exchange for the cost of the interchange fee—currently averaging less than 2% of purchase value. Merchants’ efforts to cabin these fees would harm not only consumers but also the merchants themselves as commerce would depend more heavily on less-efficient paperbased payment systems. The consequence of interchange fee legislation, as Australia’s experiment with such regulation demonstrates, would be reduced access to credit, higher interest rates for consumers, and the return of the much-loathed annual fee for credit cards. Interchange fee regulation threatens to constrain credit for consumers and small businesses as the American economy begins to convalesce from a serious “credit crunch,” and should be accordingly rejected.
TOTM Two weeks ago I highlighted the promising looking Cato Unbound forum on the new paternalism kicked off by Glen Whitman, with follow up posts and . . .
Two weeks ago I highlighted the promising looking Cato Unbound forum on the new paternalism kicked off by Glen Whitman, with follow up posts and responses from the King (or co-King along with Cass Sunstein) of Nudge, Richard Thaler, along with Jonathan Klick and Shane Frederick. I was really excited about the forum, because I have research interests in this area and consider myself a “skeptic” of the new paternalism generally (hey, the Weekly Standard says “prominent skeptic,” but even I don’t go that far). So — now that the exchange is over — I find myself, well, better off for having read it but disappointed. I’m going to blog about the disappointing part. Don’t get me wrong, it started off really well. Glen came out swinging, Thaler responds (there no slopes, paternalism is inevitable, and by the way, a really odd choice of example for the lack of evidence in favor of slopes: prohibition), Klick and Frederick chime in.
Read the full piece here.
TOTM In a recent commentary at Forbes.com, former Clinton administration economist Robert Shapiro argues that some 250,000 jobs would be created, and consumers would save $27 billion annually, by reducing the interchange fee charged to merchants for transactions made by consumers using credit and debit cards.
In a recent commentary at Forbes.com, former Clinton administration economist Robert Shapiro argues that some 250,000 jobs would be created, and consumers would save $27 billion annually, by reducing the interchange fee charged to merchants for transactions made by consumers using credit and debit cards. If true, these are some incredible numbers.
TOTM The WSJ implies that the answer is yes in an interesting article describing the Obama administration’s changing views on behavioral economics and regulation. The theme . . .
The WSJ implies that the answer is yes in an interesting article describing the Obama administration’s changing views on behavioral economics and regulation. The theme of the article is that the Obama administration has eschewed the “soft paternalism” based “nudge” approach endorsed by the behavioral economics crowd and that received so much attention in the blogs — especially as it related to Cass Sunstein’s appointment to OIRA, the Consumer Financial Protection Agency and a few other issues — in favor of harder paternalism and “shoves” including recent proposals for “regulating health-insurance rate increases, separating commercial banking from investing on behalf of their own bottom lines, and prohibiting commercial banks from owning or investing in private-equity firms or hedge funds.” The article also points to a proposal for new regulations (that I had not heard of prior), that “would require retirement counselors to base their advice on computer models that have been certified as independent” as a precondition that must be satisfied before advisers can push funds with which they are affiliated.
TOTM Jim Van Dyke (who contributed to our interchange symposium) has an interesting post up today recounting a brief glimpse of life without payment cards… Read . . .
Jim Van Dyke (who contributed to our interchange symposium) has an interesting post up today recounting a brief glimpse of life without payment cards…
TOTM Gretchen Morgenson doesn’t want poor people to have access to consumer credit. At least, that’s what I think she’s saying in her rambling NYT column . . .
Gretchen Morgenson doesn’t want poor people to have access to consumer credit. At least, that’s what I think she’s saying in her rambling NYT column this week.
TOTM Economist, co-author, and sometimes TOTM guest David Evans (UCL, University of Chicago School of Law) has an excellent note on “Why Now is Not the . . .
Economist, co-author, and sometimes TOTM guest David Evans (UCL, University of Chicago School of Law) has an excellent note on “Why Now is Not the Right Time To Revamp Consumer Protection,” based on remarks made at the New York Federal Reserve Board-New York University Conference on Regulating Consumer Financial Products yesterday in New York. Evans makes some of the points we discuss in our joint work criticizing the intellectual basis for the Consumer Financial Protection Agency, but also offers a concise and powerful case against “revamping” consumer protection too hastily, or without attention to the institutional details or the economic evidence. Geoff’s post the other day on credit card regulation, for example, points out precisely the types of harmful errors that can be made on “behalf” of consumers when invoking the behavioral economics literature without analyzing it (or the related empirical evidence) closely. Evans makes six essential points — and I’m excerpting here — but I suggest readers check out the whole thing…
TOTM Adam Levitin has a blog post up responding to Todd Zywicki’s recent WSJ editorial on credit card interchange fees. As most readers know, this is . . .
Adam Levitin has a blog post up responding to Todd Zywicki’s recent WSJ editorial on credit card interchange fees. As most readers know, this is a topic of significant interest around here, and Josh blogged about Todd’s op-ed just yesterday. I’m on vacation so I’ll be brief, but I thought Adam’s post was so wrong it necessitated my getting off the beach for a reply. Adam writes…
Popular Media Fresh off of its enactment this summer of new regulations on consumer credit card terms, some in Congress want to go further—to impose a national . . .
Fresh off of its enactment this summer of new regulations on consumer credit card terms, some in Congress want to go further—to impose a national usury ceiling on credit card interest rates and limits on interchange fees (the price that credit card issuers charge to merchants that accept their cards). That caps on interest rates harm consumers is well understood. But price controls on interchange fees would also result in consumers paying more and getting less.
