Are VISA and MasterCard Going Too Far?

In recent news, Discover Financial Services has been going round and round in a lawsuit with Visa Inc. and MasterCard Inc. Discover claims restrictions were placed by Visa and MasterCard – the world’s two largest card companies – on banks to stifle competition and violate antitrust laws. Visa and MasterCard argue that Discover simply has not been able to close partnerships with banks because of the smaller fees that are made on their cards. But this is just one of many recent complaints about Visa’s and MasterCard’s practices.

Visa and MasterCard are under the gun in Congress as well, for price-fixing and price gauging practices. The Credit Card Fair Fee Act (HR 5546/S 3086) stops the price fixing by Visa and MasterCard by insisting upon the use of a transparent market-based process. Some may say these are anti-competitive practices, while others speculate that regulation is necessary.

Competition is what makes our economy thrive. Are Visa and MasterCard really getting too big for their britches, or are they trying to keep things secure and regulated? Visa responds that “HR 5546 remains and anti-consumer bill that would mandate unnecessary regulatory intervention into a fiercely competitive industry that is benefiting consumers, merchants, and financial institutions.”

While merchants out there are probably cheering on the intervention of Congress, this may not be a great thing. The card processing industry is complex and involves more than just the rate a merchant is paying. The Credit Card Fair Fee Act allows merchants to negotiate Interchange rates, which could cause merchants to lose out on the service, customer support, equipment upgrades, and personal attention that their card processing company provides. Visa and MasterCard are not going to provide any extra services if negotiations occur; in fact, lower Interchange rates will probably cause the opposite effect.

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