Photo Credit: Andreas Klinke Johannsen
By Phil Kerpen
The same politicians who mostly killed free checking and debit card rewards programs through government prices controls are setting their sights on credit cards – and that means miles, cash back, and other rewards are now in jeopardy.
That's a potential political earthquake, because a recent study found that 84 percent of all credit cards are rewards cards, and 70 percent of cardholders who make less than $20,000 a year have rewards cards. Many small businesses also rely on rewards cards – especially cash-back cards.
Those individuals and small businesses need to engage quickly to stop efforts underway by Senator Dick Durbin (D-IL) to build support from his colleagues to extend his 2010 price-control and network-routing regulations on debit cards to credit cards.
The debit card experience should be seen as a cautionary tale.
Rushed to the Senate floor with no committee consideration as part of the Dodd-Frank Act, the Durbin Amendment placed price caps and network routing mandates on debit card transactions, benefiting the biggest retailers but disrupting the business models of banks, credit unions, and stores selling smaller-ticket items. When banks and credit unions were squeezed, they had to cut expenses, and that meant cutting free-checking accounts to customers with lower balances and ending nearly all debit rewards programs.
To garner the support of a handful of Republicans in 2010, Senator Durbin pitched his regulations as a boon to both retailers and to consumers. This is what actually happened:
- 77 percent of retailers kept prices the same and 21 percent actually increased prices because of the Durbin regulations, per the Richmond Federal Reserve.
- Free checking dropped from 60 percent of all accounts to only 20 percent, according to a University of Pennsylvania study.
- The Durbin Amendment cost the average low-income American about $160 per year, per a Boston University study.
- The number of unbanked Americans increased by about a million, according to the same study.
Durbin considers this a success – because his only real purpose was to push down transaction costs for the biggest retailers. And just as debit regulations hurt consumers, imposing Durbin-style price and routing controls on credit cards will result in rewards programs disappearing – particularly for lower income customers who are less valuable to banks.
Is that worth it to relieve influential big box retailers of what they claim are excessive transaction fees? If the costs are really so high, why have "cash only" stores almost completely disappeared?
Electronic payment costs vary, but average around 2 percent. But the average cost of cash across all retail sectors is 9 percent in a recent study. Grocery stores are on the low end of cash costs at 5 percent and bars and restaurants are on the high end of cash costs at 15 percent. The study defined the cost of cash as managing cash drawers, interacting with their banks with deposits, reconciling cash flows, and “shrinkage” from cash that goes missing from loss, theft, and fraud.
by Phil Kerpen
Broadband has been America's greatest infrastructure success story – modern, reliable, and passed the stress-test of soaring demand from COVID lockdown with flying colors. That stands in stark contrast to government-run infrastructure—water, sewer, transportation—which in many places is in a state of disrepair. It also stands in contrast to broadband in Europe, where regulators opted for government-managed pseudo-competition, as networks struggled and strained and had to be throttled when demand surged.
As the University of Pennsylvania's Christopher Yoo reported: "Between 2010 and 2016, American providers invested on average annually 2.35 times as much per household as their European counterparts. This allowed the average U.S. household to consume more than three times as much data as the average European household in 2017, according to Cisco. This is a significant jump over the 44% difference between U.S. and Europe that existed a decade ago."
Even Obama's FCC chief Tom Wheeler admitted at the height of lockdown: "Credit is due to the nation's broadband providers. The fact we can work from home is the result of hundreds of billions of investment dollars and construction and operational skill."
A sensible infrastructure policy would look to broadband as a model to bring more private management and investment into other types of infrastructure. The Biden administration is doing precisely the opposite— massively funding a government takeover of broadband.
The justification for government-run broadband keeps changing. As recently as 2010, Obama National Economic Council member Susan Crawford warned "consumers will have just one provider to choose from: their local cable monopoly." Wireless couldn't compete. Telco Internet – with the exception of Version FIOS – didn't count as broadband. "This is the central crisis of our communications era," she wrote.
The exact opposite happened. Competition kept increasing—every year, more Americans have more options for Internet access. Today, it's not just cable and telcos competing—it's 5G providers, fixed wireless providers, and low-Earth orbit satellite companies all vying for broadband dollars.
So now, just one Democratic administration later, the primary justification for government-run networks is that private networks are great at downloading but don't upload fast enough. Really?
The U.S. Treasury is proposing a redefinition of broadband to symmetrical 100 megabit upload and download speeds that would instantly make 58 percent of all households unserved—surprise, even your gigabit cable Internet isn't broadband anymore!
The idea is absurd on the merits. Broadband consumers in 2019 used 14 times more downstream than upstream; asymmetrical networks were deployed not just for technical reasons, but to serve actual usage patterns. Zoom's posted technical requirements only call for 0.6 to 3.8 Mbps of upstream capacity. While video conferencing increased due to COVID, this asymmetrical usage barely budged.
Meanwhile, we have more evidence than ever that government-owned networks are boondoggles. A recent report from Citizens Against Government Waste found:
"From Bristol, Virginia to Provo, Utah, GON projects have proven to be costly, unsustainable, and anti-competitive, while they divert taxpayer resources from higher priorities and fail to solve connectivity issues… Proposals...