Capital One and the potential of Discover fusion is a perfect example of why free market competition is always superior to unelected government bureaucrats picking winners and losers. Real competition comes from private sector innovation, which increases consumer well-being and creates value for shareholders and retirees.
Shortly after Capital One and Discover announced their plan, high profile democrats and even a republican He slandered the deal. But this all-stock proposition benefits investors, many of whom are American households. Nearly 60 percent of all American households own a defined contribution retirement account. Forty-two percent own an individual retirement account (IRA). To say that this merger would only be a windfall for the rich is a false statement.
The proposed merger shows how big government Credit Card Competition Law It’s bad policy. To begin with, while Visa owns about 50 percent market share by volume, as Forbes points out, it is clear “There is no duopoly in this market in any objective sense.”
Additionally, the law gives the Federal Reserve free rein to regulate credit card routing almost in perpetuity. This is evidenced by the continued regulation by the Federal Reserve of debit cards years after the Durbin amendment was enacted. If the government is given an inch of new power, it will take a mile.
Saying that the Credit Card Competition Act will help small businesses is also false. According a paperSmall businesses will largely lose access to $700 billion in revolving credit lines and may lose more than $1 billion in rewards.
The real relief for small businesses comes in the form of lower taxes. Signed into law by Rep. Lloyd Smucker (R-Pa.) bill Adding permanence to the 199A small business deduction would provide substantial relief to small businesses.
Approving the Capital One-Discover deal would further defeat the purpose of the Credit Card Competition Act. The law is intended to improve competition, but if the merger closes, the justification for the bills The exemption from the tripartite model and the card restriction for networks with the two main market shares are weakened.
The law was clearly designed to target only Visa and Mastercard (which is embarrassing for Congress to target specific companies), but if the merged entity ends up with the second-largest market share in the future, the bill would prohibit the Combined entity and Visa provide their networks on the same credit card. At the same time, network-owning banks, such as Discover and American Express, are exempt from the bill’s provisions. The bill would contradict itself.
The market is always changing. Codifying the onerous and counterproductive restrictions of the Credit Card Competition Act would only distort the market by treating certain networks differently. The government would choose winners and losers.
This further illustrates how its defenders talk out of both sides of their mouths.
On the one hand, progressive politicians like Sens. Dick Durbin (D-Ill.) and Elizabeth Warren (D-Mass.) claim to advocate competition and hyperventilate corporate consolidation. On the other hand, such legislation would freeze the market to the benefit of existing ones and discourage new entrants. This distorting approach would decrease competition to the detriment of American consumers, the opposite of Durbin and Warren’s stated goal.
Consideration of the consumer welfare standard is of utmost importance. In 2018, the United States Supreme Court ruled on a case where Justice Clarence Thomas noted that a credit card “is more valuable to cardholders when more merchants accept it and is more valuable to merchants when more cardholders use it.”
The court found that the rate charged by American Express was “no higher than the price one would expect to find in a competitive market.” Additionally, the court determined that “Amex’s increase in merchant fees reflects increases in the value of its services and the cost of its transactions, not an ability to charge above a competitive price.”
In this case, an increase in tariffs did not restrict production and consumers were not worse off. This is evidence of a healthy market, not one that needs the Credit Card Competition Act.
If regulatory barriers don’t get in the way, free market competition will find a way. Credit card competition is a product of creating shareholder value and seeking opportunities to generate supply to meet demand for electronic payment cards that offer rewards, privacy protections and easy-access lines of credit.
Instead of encouraging competition, Congress will end up handing the reins to the Federal Reserve. The free market is the answer.
Bryan Bashur is director of financial policy at Americans for Tax Reform. Tom Hebert is director of competition and regulatory policy at Americans for Tax Reform and executive director of the Open Competition Center.
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