Odysseas Papadimitriou is founder and chief executive officer of Evolution Finance, the parent company of Wallet Blog and Card Hub, an online marketplace for credit cards.
Disagreements between merchants and banks concerning interchange fees for credit card purchases have prompted Sen. Dick Durbin (D) to introduce yet another piece of legislation to the U.S. Senate. The legislation would create a panel of judges to help facilitate a settlement between the merchants and banks. With four major credit card networks out there -- MasterCard ( MA), Visa ( V), Discover ( DFS) and American Express ( AXP) -- and a variety of private-label cards issued by large merchants, it's hard to see why the government is being asked to step in to settle this dispute. The government already has added more regulations to the credit card industry via the Credit Card Act of 2009. I support the act on the position that the legislation was needed to stop deceptive practices, which prevented consumers from being able to accurately estimate the true costs of obtaining a credit card. However, this doesn't mean that government regulation is needed in all aspects of the credit card business. Given that there are a number of networks in the market, there is no monopoly on interchange fees. Additionally, none of these networks are using practices that make it hard for merchants to estimate the true cost of accepting credit cards. As such, free-market principles ought to make setting the rate on interchange fees a self-regulating practice. If merchants argue they have no choice but to pay high fees for purchases made with credit cards, they can offer a discount to customers paying with cash. Alternatively, large merchants could come together and create their own credit card network that competes with MasterCard, Visa, et al. Nothing forces a merchant to accept all types of credit cards. What is clear, however, is that Congress has no business in this area.