New federal government data released last Wednesday reveals consumer prices jumped by five percent in March compared to the year before. That’s bad news for American families. It marks the 24th consecutive month that price increases have surpassed average earning gains.
Translation: Americans have been getting pay cuts for two years straight.
The Federal Reserve is doing its part to stabilize prices; the central bank has raised interest rates by more than four points since this time last year. But taming inflation—and keeping it down—will require a whole of government approach. Congress needs to do its part.
Beyond calls for lawmakers to be more fiscally responsible, there are opportunities to address breakdowns in the free market that will help lower costs for consumers. Newly released data featured by Nilson Report suggests reforming the credit card market may be a good place to start.
While some Americans are aware there are fees associated with using credit cards, jaws would hit the floor if consumers knew the full extent of the scheme. The two largest credit card networks—Visa and Mastercard—control roughly 80 percent of the market. And this tag team is able to leverage its near-monopoly position to inflate the fees charged to merchants every time a customer swipes, inserts, or taps a credit card.
It's similar to buying a bottle of water at Six Flags or a hotdog on Opening Day. Merchants and their consumers are being held hostage with high costs—with no opportunity to escape.
In 2022, credit card companies and banks raked in record-high “swipe fees”—amounting to more than $160 billion. That’s a roughly $20 billion jump compared to the year before. To put that into perspective, the entire National Football League brings in $19 billion in annual revenue.
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For many businesses, notably restaurants and convenience stores, “swipe fees” are the largest operating expense behind labor costs. But how does this connect to inflation? Just like higher business taxes, consumers end up footing the bill as costs are baked into the price of everything from restaurant meals to laptops. Experts estimate that the captive swipe fee market costs the average family $1000 more every year in costs passed on to the consumer.
Congress has the opportunity to address these uncompetitive practices and lower prices for consumers.
Federal legislation was introduced last and is poised to be reintroduced that would inject competition into the credit card market. Sponsored by Sens. Roger Marshall (R-KS) and Dick Durbin (D-IL), the Credit Card Competition Act would require banks with more than $100 billion in assets to include at least two unaffiliated credit card networks on the cards it issues to customers.
Translation: Your local restaurant or grocery store will have more options on how to ring-up customers.
In practice, the change would force credit card networks to compete against one another—creating a more dynamic and entrepreneurial payment processing environment. That would in turn drive down “swipe fee” levels and lower the price consumers pay at the checkout counter. There would even be the added bonus of creating an easier environment for lesser known card networks–such as Star or Shazam–to throw their hats into the ring, leading to a long lasting competitive market rather than a captive one.
This would hardly be an unprecedented policy area for a legislature to take action on. A handful of states have recently proposed bills aiming to at least partially address the swipe fee burden on consumers. Florida, Tennessee, and Texas are prime examples. Legislation has been introduced in these states that would ban swipe fees from being applied to state sales taxes. In practice, the move would cut the fee amount being baked into the purchase price.
While all of these bills would give consumers a much needed break, their impact would pale in comparison to the relief that the Credit Card Competition Act offers Americans nationwide.
Like a clingy ex, inflation can be a challenging problem to get rid of—requiring multiple parties working in concert to make a clean break. As the Federal Reserve and state legislatures do their parts to rein in prices, Congress has an opportunity to join in. Americans are tired of getting pay cuts—lawmakers can flip the script and help cut inflation instead.
James Bowers is the managing director of the Center for Consumer Freedom.
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