When you try to regulate things, you’re really regulating people. If there’s one crucial lesson to keep in mind about regulation, this is it. And these days, when regulations cost us over $14,000 per household each year, according to my colleague Wayne Crews’s calculations, it behooves us to consider the unintended consequences of each new regulation, however benevolent its intent. A good place to start is the new regulations on credit card interchange fees.
Counterintuitive as it may seem, merchants who accept credit cards have always paid credit card companies for their use, not the other way around. For an explanation why, watch the classic movie The Card, starring Alec Guinness, about a rakish young entrepreneur who invents an early version of a credit card, the Universal Thrift Club. The merchants who accept the card get more customers because of the availability of credit and the convenience of using a card, so they pay the people who provide that boost to their business.