A new study from the Electronic Payments Coalition shows that — rather than making credit more affordable — price controls such as the Durbin-Marshall “Credit Card Competition Act” increase costs for consumers and reduce access.
According to the report over the last 12 years:
- In the U.S. more than 80% of Americans have access to cards. In Europe the rate is about 50% and in Eastern Europe closer to 20%.
- Credit card annual fees shot up in Europe after price controls on interchange fees were implemented. The fees charged customers are 17% higher in Italy, 76% higher in Germany, and 105% higher in France than in the U.S.
- Annual fees constitute 5% of revenue in the U.S., but are “three to six times higher in the EU.”
- Price controls slashed rewards programs. Most UK rewards cards, for instance, pay about 0.25% cash back, versus a typical 2% on US cards.
Moreover, the study quotes from the Financial Times: “the U.S. economy is now considerably richer, and more dynamic than the EU or Britain — and the gap is growing … In 2008, the EU and the US economies were roughly the same size … Europe that has fallen behind — sector by sector.”
Additionally, it quotes the Wall Street Journal: “Europeans are facing a new economic reality, one they haven’t experienced in decades. They are becoming poorer … Adjusted for inflation and purchasing power, wages have declined by about 3% since 2019 in Germany, by 3.5% in Italy and Spain and by 6% in Greece. Real wages in the U.S. have increased by about 6% over the same period, according to OECD data.”
Objections to price controls
Vance Ginn, former White House chief economist and senior fellow for the Kansas Policy Institute — which owns The Sentinel — predicted earlier this year that the Durbin-Marshall bill would have the same general effects.
“A 10% cap on credit card interest rates is a price control that will reduce access to credit for higher-risk borrowers while favoring those with stronger credit,” Ginn said. “When government suppresses risk-based pricing, lenders tighten standards and pull back — hurting the very people the policy claims to help. The real fix for affordability is less government spending, less regulation, lower taxes, and a stable dollar, not price controls.”
The Kansas Bankers Association also opposes price controls.
“A government-imposed interest rate price cap of 10% would eliminate credit card access for millions of Americans and thousands of Kansans,” KBA President and CEO Doug Wareham said in a release. “While mandating an interest rate ceiling on credit cards might sound appealing to some, the fact is implementing this type of price control will not benefit most consumers but will in turn devastate families and small businesses that rely upon and value having access to the benefits of a credit card. Simply put, the implementation of government price controls will force banks to tighten their credit card lending standards and severely limit consumer access to the safe and reliable credit cards we all rely upon in our everyday lives.”
Indeed, according to EPC, a study found the Durbin-Marshall bill could cost the U.S. Economy $227 billion and as many as 156,000 jobs.
“This new study proves the Durbin-Marshall bill is a jobs killer,” Richard Hunt, Executive Chairman of the Electronic Payments Coalition said. “The U.S. economy cannot afford a quarter-trillion-dollar hit, and workers in cities across the country should not have to suffer so corporate megastores can pad their profits. Make no mistake, this bill would create a completely avoidable downturn in local communities. It is anti-growth and dangerous economic policy.”