Surprise, a politican’s plan won’t make gas cheaper

Everyone is frustrated by the high price of gasoline. But it’s important to keep the blame where it’s due, on the economic cost of war, because politicians are quick to follow Rahm Emanuel’s old advice to never let a “serious crisis go to waste.”

Such political expediency was recently displayed by Sen Roger Marshall (R-Kan.), who recently wrote on social media Americans “will spend $58,226,000 on swipe fees at the pump,” an apparent effort to bolster his government price-control bill, the misnamed “Credit Card Competition Act.”

Taking aim at the swipe fees credit card companies charge gas stations is a cheap shot.

For starters, almost every gas station already gives consumers the option to pay in cash with a discount. But most customers with cashback cards can get rewards that are more valuable than the cash discount, which is win-win for the station owner and the customer. NerdWallet [nerdwallet.com] has reported that several credit card rewards programs offer 3% to 5% cash back on gas with no annual fee.

Of course, not all credit cards offer the same incentives, and it is always wise to pay off your balance to avoid interest charges. But why vilify the payment method when knowledgeable consumers can use credit card rewards to lower their costs at the pump? And customers who don’t want to use cards can already avail themselves of cash discounts?

Governments often assume they know best, but legislation like the Orwellian named “Credit Card Competition Act” suggests otherwise. The bill would allow retailers to route credit card transactions through lower-cost, off-brand networks of their choosing, effectively imposing a form of price control. That approach closely mirrors the debit card fee controls included in Dodd–Frank Wall Street Reform and Consumer Protection Act, which ultimately produced significant unintended consequences. After those regulations took effect, free checking accounts became less common, fraud increased, debit rewards programs disappeared, and consumers saw no reduction in retail prices.

If de facto price controls were applied to credit cards, it would similarly kill credit card rewards programs, which are already often more generous that swipe fees according to a Federal Reserve Bank of Richmond study. That would increase prices at the pump because gas rewards are among the most popular programs.

Credit card swipe fees have remained stable for over a decade, and processing cards for merchants is highly competitive. Banks and payment networks have increased their revenues because transaction volumes and average purchase amounts have increased as customers increasingly prefer the convenience of credit cards and reward programs over ATMs and cash discounts. Total fees collected are growing only because gas itself has become more expensive. And gas getting more expensive has nothing to do with credit card companies, but perhaps Senator Marshall would rather lay the blame there than state the simple truth that the president’s war in Iran is expensive on the homefront.

Scapegoating credit card companies for the cost of gasoline is nonsensical, and price controls will have adverse consequences when applied to credit cards as they did when applied to gasoline itself in the 1970s.

Originally published on Cagle.