MANCHESTER, UNITED KINGDOM – FEBRUARY 23: A chip and pin debit console is seen on 23 February, 2006, in Manchester, England. In the wake of Britain’s biggest cash robbery, taking at least GBP25 million in cash, many experts have questioned the need for hard cash with the advent of chip and pin and debit cards and predict a future cashless society. (Photo Illustration by Christopher Furlong/Getty Images)
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Total credit card debt in the U.S. is presently in the range of $1.2 trillion. Except that the $1.2 trillion only tells part of the story given the interest rates charged on credit-card balances.
The good news to all this is that with its debit cards, Visa has created a way for Americans to avoid running up credit card debt. And as evidenced by the extraordinary popularity of debit cards (they’re the way that 75% of Americans most routinely interact with banks), Visa’s solution to the challenges of credit-card debt is extraordinarily popular with consumers.
Where a happy story of commerce fixing a potential problem (running up debt) for consumers becomes puzzling can be found in the sad fact that for meeting, and crucially leading consumer needs, Visa finds itself the target of a Department of Justice (DOJ) antitrust suit. The popularity of debit cards has the DOJ claiming Visa has monopolized the debit card market, and in the process saddled consumers with higher fees. If you’re confused as you read this, it’s with good reason. See above.
Debit cards have all the point-of-purchase swipe features of credit cards, but for some crucial money-saving differences. That purchases with debit cards occur in concert with a reduction in the user’s bank balance means that these cards are a natural barrier to the tendency for consumers (see $1.2 trillion in credit card debt) to spend beyond their means. Which is the first point.
Debit cards by their very name exemplify impressive cost savings for consumers. Since their usage is an effect of money already in each consumer bank account, there’s no costly debt or debt payments associated with their use. Which once again speaks to their enormous popularity. It’s not about Visa asserting non-existent monopoly powers, rather it’s the card company once again providing consumers with credit card features minus costly debt.
Which requires a very brief historical detour. After what happened in 2008, and after politicians almost completely misunderstood what happened in 2008, the Durbin Amendment followed. This capped debit card swipe fees at .21 cents. The result was that prudent users of debit cards no longer enjoyed all manner of credit card like benefits, including airline miles for each dollar spent. Put another way, a federal government decree made it quite a bit more costly for individuals to use debit cards over credit cards. To understand the implications, see this opinion piece’s introduction yet again.
At which point it’s useful to travel back into the present, and in doing so wonder why the Trump administration hasn’t dismissed the DOJ’s lawsuit against Visa, one begun during the Biden administration. The Biden DOJ made its suit about allegedly higher fees for consumers and businesses, but as is very apparent, debit cards are favored by consumers and businesses precisely because they’re low cost for both: businesses pay reduced swipe fees and consumers run up less costly debt. It’s what they all want, which isn’t a signal of a monopoly as much as it’s a sign of Visa and its debit card issuers addressing a high-cost situation for both consumers and businesses, and bringing prices down in response.
In short, neither Visa nor debit cards are the problem. The problem is government, not just with a meritless antitrust case, but a government that imposed price controls on debit card usage in the first place. The price controls have proven costly for consumers and businesses by creating incentives for consumers to take on more debt with cards that are more expensive for businesses to swipe.