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Vanderbilt Law Review

Abstract

You pay an invisible tax every time you swipe your credit card to pay—whether to buy groceries, grab a coffee, or access transportation. Credit card companies charge merchants to process your transaction, who in turn increase their own prices. These swipe fees are both extractive—higher than the cost of service and the fees in most other countries—and regressive—placing more of the cost burden on lower-income consumers and smaller merchants. Such outcomes are typically associated with firms having material market power. Yet, this market has competition: Consumers choose various cards offered by multiple card issuers, including banks and networks like American Express, Discover, Mastercard, and Visa. Nevertheless, these problems persist. The consensus treats these poor outcomes as the result of an imperfect market. If merchants could better price their products to reflect the costs of different card payments or if additional networks existed, then prices would fall and price discrimination would dissipate. This Article challenges the view that increasing competition is the proper antidote. This view ignores how this market is structured. Issuers of cards raise swipe fees to fund more generous rewards, which attract more cardholders to use their cards. In doing so, issuers channel rewards-focused consumers to merchants who take their cards. Merchants incur this fee, rather than surcharge or reject these cards, to avoid dissuading credit-card users from spending at their stores. This Article argues that a better answer can be found in public utility law, which requires rates to be just and reasonable and forbids discrimination. Rate regulation, while out of vogue today, has long facilitated affordable and broad access to payments infrastructure, including for checks and debit cards. Using credit cards as a lens, this Article demonstrates how rate regulation has a broader role as a tool of economic governance beyond natural monopolies.

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