Florida Could Teach Congress How to Protect Consumers

The Senate failed to achieve the 60 votes necessary to move forward on the Restoring American Financial Stability Act Monday. All Republicans present and Sen. Ben Nelson, D-Neb., voted against the bill in a 57-41 tally that was three short of cloture.

The Competitive Enterprise Institute, along with a broad spectrum of groups in the Center-Right Coalition, signed a letter expressing opposition to the bill’s bailouts, taxation, and overregulation.

On the latter point, there is widespread concern about a giant new bureaucracy the bill would create, the Consumer Financial Protection Agency, which would have a $700 million budget and little oversight by Congress or other agencies.

What alarms many market-minded individuals is that advocates of the new agency say it not only would police financial products that are fraudulent or deceptive but also would ban those that fall into the category of other terms such as “abusive” that are wholly arbitrary and at the discretion of bureaucrats. This would limit consumers’ choices and opportunities.

“While we believe the government should act swiftly to punish financial fraud, it should not diminish Americans’ choices and opportunities in the name of ‘stability’,” the letter states.

What kind of consumer regulation acts to protect consumers from deceptive advertising without limiting the choices they make or informed risks they can take? If our federal lawmakers want an example of reasonable consumer regulation, they may want to look at a bill on the verge of passing the Florida Legislature that takes on deceptive surcharges some retailers add to debit and credit card purchases.

This piece of legislation helps make the case that we don’t need a giant new bureaucracy or sweeping federal rules to ensure consumers have accurate information. Often, simple rules are the most effective for consumers and least burdensome for business.

The bill, HB 621, unanimously passed the Florida House Friday. Just a few pages long, in contrast to the 1,336-page financial bill in the Senate, the law imposes a simple non-costly requirement on the posting of prices at retailers in the state.

It says that retailers can’t add surcharges at the checkout counter for debit card purchases, updating a state law that has long banned these surcharges for credit card purchases. The law, however, leaves retailers free to offer a discount for cash purchases.

Why allow discounts, but not surcharges? Because surcharges often can mean inaccurate pricing, and can hit consumers when it is too late to change their minds based on the omitted information.

The most prominent example is that of gas stations. Imagine you see a sign from the street saying that gasoline is $2.50 a gallon. You pull in and fill up. Then you discover you were charged and extra 5 cents a gallon because you used a credit or debit card. What are your options? You can’t exactly put back the gas you have pumped into your car!

Yet under this law, if merchants are transparent in their pricing, they still can offer discounts if they want to encourage their customers to use cash or to recoup what they say are the costs of credit card processing. However, as Ryan Radia and I wrote in our study “Payment Card Networks Under Assault,” the interchange fees and other costs that retailers pay to credit card issuers are often outweighed by the costs and risks of fraud and theft from payment by cash or checks.

Florida’s bill may not be the only way to attack deceptive retail pricing. But it is one innovation from the state governments that are laboratories of democracy.

In addition, and in an example of what Competitive Enterprise Institute President Fred Smith calls “competitive regulation,” most credit card issuers prohibit merchants from imposing these surcharges as a condition of their contracts.

So why again, do we need a huge new federal bureaucracy, when states and private contracts are attacking specific problems in a more targeted and streamlined way?