Behind the credit card, ubiquitous in American economic life for decades, lie a few gigantic financial institutions that wield almost unlimited power over how much consumers and businesses pay to use a small piece of plastic. Both American consumers and small businesses are spitting fire these days about the cost of credit cards, while the companies that profit from them are making money hand over fist.
We are now having a national conversation about what the federal government can do to reduce the cost of credit cards. Sens. Bernie Sanders (I-Vt.) and Josh Hawley (R-Mo.), truly strange political companions, have proposed a 10% limit. Now President Trump has also. But we risk spinning our wheels if we don't face the facts about the underlying structure of this market.
We should dispense with the notion that the credit card business in the United States is a free market with strong competition. Instead, we have an oligopoly of dominant banks that issue them: JPMorgan Chase, Bank of America, American Express, Citigroup and Capital One, which together represent about 70% of all transactions. And we have a duopoly of networks: Visa and Mastercard, which process more than 80% of those transactions.
The results are higher prices for consumers who use the cards and businesses that accept them. Possibly the most telling statistic tracks the difference between borrowing benchmarks, like the prime rate, and what you pay with your credit card. That margin has been increasing steadily over the last 10 years and now stands at 16.4%. TO Federal Reserve study I found the problem in all card categories, from their super duper triple platinum card to high-risk cardholders. Make no mistake: Your bank is raising credit card rates faster than any overall increase.
If you are a small business owner, the situation is equally daunting. Credit cards are an important source of credit for small businesses, at an increasingly high cost. Additionally, businesses suffer from fees that Visa and Mastercard charge merchants for customer payments; These have also increased steadily because the two dominant processors use a variety of techniques to maintain their control in that market. Those rates almost doubled in five years, until 111 billion dollars in 2024. These fees, which are largely passed on to consumers in the form of higher prices, often rank as the second or third highest business cost, after real estate and labor.
There is nothing divinely ordained here. In other industrialized countries, the simple task of moving money – the basic function of Visa and Mastercard – is much, much less expensive. Consumer credit is also less expensive in other parts of the world due to greater competition, stricter regulation and long-standing standards.
Now some American politicians want limits on card interest rates, a tool that absolutely has its place in consumer protection. A handful of states already have strict limits on interest rates, a proud legacy of a spirit of protecting the most vulnerable people against the biblical sin of usury. Texas imposes a 10% limit on loans to people in that state. In 2006, Congress decided to protect military service members with a 36% cap on the interest they can be charged. In 2009, it banned a series of deceptive fees designed to extract more money from card users. Federal credit unions cannot charge more than 18% interest, even on credit cards. Brian Shearer of the Policy Accelerator for Political Economy and Regulation at Vanderbilt University has conducted a persuasive case to cap credit card rates for the rest of us too.
At the very least, there are many reasons to ignore the rancid serenade from the banking lobby that any regulation will only harm the people we are trying to help. Credit still flows to the soldiers and sailors. Credit unions still issue cards. States with usury limits still have functioning financial systems. And the 2009 law that Congress approved convinced even skeptical economists that the result was a better market for consumers.
If consumers receive such common-sense protections, what is at stake? Profit margins for banks and card networks, and there is no compelling public policy reason to protect them. The big banks have profit margins that exceed 30%a level that is modest only in comparison Visa and MasterCardwhich average a margin of 45%. Meanwhile, consumers face $1. 3 trillion debt. And retailers make do with a margin about 3%; shopkeepers settle for half of that.
The market won't fix what's wrong with credit card fees, because the handful of companies that control it are feasting at everyone else's expense. We must free the market from the clutches of the major banks and card processors and restore vibrant competition. Leveraging market forces to achieve better outcomes for consumers, along with smart regulation, is as American as apple pie.
Fortunately, Trump has supported – through social networks – bipartisan legislationthe Credit Card Competition Act, which would open up the Visa-Mastercard duopoly by allowing merchants to route transactions through competing networks. We hope he follows through and gets enough Republicans in Congress to join him.
That change would leave us with the megabanks still controlling the credit card market. One approach would be consumer-friendly regulation of other means of credit, such as buy now, pay later tools or innovative payment apps, including protections enjoyed by credit cards. Ideally, Congress would limit the size of banks, something it refused to do after the 2008 financial crisis, to the lasting frustration of reformers seeking structural change. Trump became president in 2017 ordering a new Glass-Steagallthe Depression-era law that broke up the big banks, but never enforced it.
Fast forward nine years and we find growing negative feeling among American voters, who groan under the weight of credit card debt and a cascade of junk rates from other industries. Populist anger against corporate power is rising. The race between the two major parties to harness that sentiment toward victory in the November midterm elections and beyond is on. A move to limit the power of big banks could be just a tweet away.
Carter Dougherty is the senior member of anti–monopoly and finance Demand progressan advocacy group and think tank.
