Jun 30, 2026
On June 30, The Capitol Forum held a conference call with Carter Dougherty, Senior Fellow for Antimonopoly and Finance at Demand Progress, to discuss his recent article for The Sling, “Visa and Mastercard: The Original Gangsters of Electronic Collusion.” The full transcript, which has been modified slightly for accuracy, can be found below.
TEDDY DOWNEY: Hello everyone, I’m Teddy Downey, Executive Editor here at The Capitol Forum. And I’m pleased to be joined by Carter Dougherty, Senior Fellow for Anti-Monopoly and Finance at Demand Progress. We’ll be discussing his recent article for The Sling: “Visa and MasterCard, The Original Gangsters of Electronic Collusion,” which examines how Visa and MasterCard’s payment network practices compared to the conduct alleged in the RealPage litigation and what that may reveal about competition in the payments market. Carter, thank you so much for doing this today.
CARTER DOUGHERTY: Thank you for having me, Teddy. I’m a big fan of The Capitol Forum.
TEDDY DOWNEY: So, quick note, we will take questions from the audience. If you have questions, please put them in the questions pane or in the chat, and we’ll get to them later on.
So, first off, Carter would love—well, first of all, maybe tell us a little bit about your role. I mean, this seems like a very specific role. I’m just interested in what it is that you do on a day-to-day basis. And then if you could just tell us how you came to focus on Visa and MasterCard, that would be great.
CARTER DOUGHERTY: Yeah. So, my role, as this clumsy title, Senior Fellow for Anti-Monopoly and Finance, I sort of cooked up. And the idea was to look at the issues of monopoly power within the financial system. We could go down a list of things. There’s the FICO monopoly, basically on credit scoring. There’s a concentration in investment banking that probably keeps fees higher than they need to. There’s asset management, BlackRock, Vanguard and State Street.
We could go down the list, talking about the issues around this. And I thought this deserved a lot more attention. I always felt that, as I worked for a long time in the area of financial reform, and that we didn’t embrace the antimonopoly spirit as much as we should have.
So, I cooked up this idea of being Senior Fellow for Anti-Monopoly and Finance, and Demand Progress was kind enough to embrace the idea. I also work on advocacy in areas where it looks like we might make some progress. And the interesting thing about the Visa MasterCard duopoly, and their effective collusion with the big banks that issue credit cards, is that there’s interesting, useful legislation that has bipartisan support.
Senator Roger Marshall of Kansas, a Republican, has teamed up with Senator Richard Durbin, the Democrat from Illinois, to push what’s called the Credit Card Competition Act, which would, in a nutshell, break open the Visa MasterCard duopoly by giving merchants a third option to route credit card transactions, a third network, for cards issued by banks with more than $100 billion in assets. So, really the big mega banks.
And this [bill is] basically a value expressed in legislation, and that value being we should have competition, that banks and Visa and MasterCard should be competing for the business of merchants rather than just dictating fees to them.
And in his desire to embrace things that would affect affordability, President Trump actually endorsed this legislation, of course, via social media. We’re still waiting for this White House to carry through on its pledges to support populist legislation. There’s been a lot of social media-ing about it, but not as much legislative spadework as we would like.
Nevertheless, I think the fact that it’s about competition and about giving everybody a fair shake speaks to the deeply ingrained anti-monopoly reflex in American politics, and that’s why you have bipartisan support for this. So, I work on that legislation, trying to rally consumer groups, anti-monopoly groups, sort of what you might call left-coded small business groups around this, ones that want to push back against monopoly power in general, both in their own industries and within finance as well.
It’s also possible I might spend some time working on the CFPB’s open banking rule that has the potential to introduce considerable competition into the market for consumer financial services. However, you may be aware, Russ Vought initially tried to kill that regulation. Then the fintech industry pushed back really hard. So, now, theoretically, CFPB is considering this. They’ve promised us a proposed regulation. Now we have a nominee to run CFPB, Brian Johnson, who has been a lobbyist for Capital One, one of the largest credit card issuers. So, it’s possible the banks now have the upper hand in this fight, but we’ll see.
TEDDY DOWNEY: Well, can we stay on that legislation for a second? Because I saw you at the Open Markets’ event the other day, and one of the things that struck me was that candidates, sort of like candidates for Democrats, that appear to be winning are running a very aggressive anti-establishment, anti-status quo campaign platform. That’s where the winning seems to be coming from.
Does that give you hope that should the Democrats win, they would be more open to bucking the status quo, which has been to basically just—not do nothing because obviously the Durbin Amendment did pass at some point, but like to be more open to a more aggressive—if Democrats take control of the House and/or the Senate, that this type of legislation is exactly the type of thing that would have more of a chance because you have these insurgent antistatus quo candidates who just—they’re going to be a lot less likely to take a call from Capital One or Visa or MasterCard than you otherwise would, in the Democratic Party historically.
CARTER DOUGHERTY: So, I believe you and I watched Dan Osborne, the independent candidate from Nebraska speak at that open market conference that you referenced. And Osborne has actually publicly endorsed the Credit Card Competition Act.
And I think the key word here is structural change. I think that, in general, these insurgent candidates are tired of the sort of, if I may, [the] chickenshit kind of approach of nipping and tucking with regulation at the margins. What they really want to see is some structural change that injects competition so that we have people competing for the business of small businesses and consumers. And I think that really appeals to them.
Now, if you looked at the Progressive Caucus’s affordability agenda, finance was not on there. And I personally think that’s an [important omission]. And I’ve told the chair of the Progressive Caucus, I think that’s the case. I think you could introduce some things into that. But definitely, these candidates are thinking big and they’re thinking differently than candidates have in the past who might talk about having strong regulations, that sort of thing.
TEDDY DOWNEY: I thought it was really interesting. Equally interesting was how outraged the centrist Democrats were that there was this challenge to the status quo, which I find equally just shocking from a lack of self-awareness. Party routinely ousted out of power for – like, you would think that they would change at some point. I mean, the Republicans at least have gone through a lot of iteration to change. Tea Party, MAGA, I mean, they’re at least responding at some level to the status quo’s not working. Democrats, on the other hand, endlessly willing to promote the status quo, obviously, with no real hope of winning in any ongoing way.
I would say the other thing I thought was interesting was it’s like the sort of corporate friendly Democrats are willing, they want to kick these anti-establishment candidates out of the party and the anti-establishment candidates want to kick the sort of like big business or like cozy corporatist Democrats out of the party. It’s a really interesting moment for the Democratic Party. It’s being described as civil war.
CARTER DOUGHERTY: Well, first of all, let’s have a debate. It’s a democracy, right? I don’t think the Democrats who want structural change are suggesting they don’t have to make an argument. What I do think sometimes is that the centrists, the so-called centrists—I prefer the term corporate Democrat—they sort of stake this claim where they say we’re centrists and therefore we deserve deference because being centrist is a good thing. And when you pick apart, what does centrist mean actually? Like you take somebody like Josh Gottheimer, it means sort of wrapping yourself in the mantle of civil rights. The guy had worked the Civil Rights Commission and being pro-Israel and taking a lot of money from Wall Street. And I think what you really hear from some of these folks is that their political formula has kind of fallen apart and come under criticism. The same one that Bill Clinton used and Obama to a certain extent.
And now they’re being forced to justify it. I don’t have any problem with centrist personally but I’ll have a policy debate with them. But just saying you’re centrist is not really telling me anything about what you want to do. Anyway, a little off the subject of payments.
TEDDY DOWNEY: No, no, I think this is all relevant just because what is the environment, what is the political support, for doing something on all these issues? At the center of it is that Democrats historically have a big wing of their party that wants to help the credit card companies, right? We’ll take their money and we’ll do their work for them.
CARTER DOUGHERTY: And the banks, the banks especially.
TEDDY DOWNEY: Yeah, I mean, it’s banks and credit cards. Like that’s just a big part of the party. And it’s just like, are you going to kick those people out? And then you’re going to maybe do something that they don’t want. Or if you just keep them at base.
So, to me, it’s this political struggle. And what I always look back to, just to be predictive, is who is winning, right? Like what is the winning candidate? And I think some of these anti-establishment candidates are literally socialists or they’re like communists or whatever. They’re literally saying, hey, I want a different economy altogether. Then you have other people like Osborne who’s like I want a more competitive economy, right? Like I want real capitalism or whatever you have. So, you’re getting a lot of these anti-establishment views.
CARTER DOUGHERTY: I personally think this socialist thing is a little overwrought. And I noticed in an interview that Zoran Mondani, they say you’re a socialist. He says, I’m a democratic socialist. But you look at things that he’s embraced like a public option for grocery stores. Well, we already have a public option for medical insurance. And this public option notion has a long history.
TEDDY DOWNEY: Well, even that’s like competitive, right?
CARTER DOUGHERTY: Yeah.
TEDDY DOWNEY: Like you’re introducing something that’s competitive. It’s not really socialism unless you’re like taking the whole thing over.
CARTER DOUGHERTY: But it’s a label. And, of course, it’s going to get used because it’s politics and everything. But to me, what I think the analysis you described sort of leaves out is—when it comes to anti-monopoly purposes—is that the potential for a Republican support for some of these measures massively undermines the corporate Democrats grip on things. Because if progressives can come up with ideas that slice off a number of Republicans, arguably even a small portion, then it really disempowers these corporate Democrats who, in their own way, benefit from hyperpolarization because you can’t get all Democrats to support something then you’re screwed. So, I think that political dynamic might end up being, as regards to anti-monopoly issues, more important than just the narrow question of what sort of debate there is among the Democrats.
TEDDY DOWNEY: Okay, we’ve got a question. Are there going to be actual practices of credit card issuers and banks that are going to be discussed? Well, we’re getting there. We’re getting there. Sorry for the lead up. So, point of the paper was, yeah. Well, look, I think it’s all interesting context. Like you look at credit card companies holistically, like what is their regulatory risk? What is the outlook for their legislative and regulatory risks? This legislation is a big deal. So, I mean, it must be because I get advertised incessantly about how dangerous it will be to reduce the choice of the citizens to have Visa and MasterCard get their way in an ongoing way.
CARTER DOUGHERTY: You’re seeing ads by the Electronic Payments Coalition. That’s the card networks and the big banks.
TEDDY DOWNEY: Yeah, yeah. Sorry for people who don’t live in D.C., but like there’s a lot of money being thrown at this. There’s certainly some high stakes here. But let’s get to the paper. We’ve focused a lot on algorithmic price fixing here at The Capitol Forum. You mentioned RealPage, a few other big cases. And you argue, hey, Visa and MasterCard are the original gangsters in this space. How do you see collusion in that market matching up well with a crackdown on algorithmic price fixing?
CARTER DOUGHERTY: Yeah. So, we all know there’s been a lot of discussion of how RealPage works. Basically, landlords share information and RealPage gives them advice on how to maximize rents without the landlords actually explicitly sharing information with each other. And Jonathan Kanter [the former assistant attorney general for antitrust] has called this more effective collusion than your proverbial smoke-filled rooms.
Now, just to bear in mind here, what we’re talking about is the fees on credit cards—which the collective term is swipe fees or two and a half, pushing three percent in some cases. And merchants paid about $200 billion in swipe fees last year. That number has doubled since the pandemic. That’s debit and credit card swipe fees that I just mentioned there. And shows no sign of abating. I think it was about ten days ago, Visa announced a bunch of new network fees that probably cost merchants about $3 billion more a year. And consumers never see this. This money is simply deducted from the price of something you pay with a card. And then it goes to Visa MasterCard, who then share the bulk of the money with the card issuing banks.
TEDDY DOWNEY: Well, in fairness there, typically, the grocer is probably going to raise prices to deal with the higher fees, right? Like if they want to keep their margins, they want to keep their revenues flat, they’ve got to raise prices.
CARTER DOUGHERTY: Yeah, I mean, you’ve got to bear in mind that a lot of merchant areas, which is a broad category, but let’s take restaurants are very competitive. Their margins are very, very low. So, do they, can they all pass it on? Do they have to squeeze margins? I mean, it’s true that the consumer pays for it. It’s also true that it makes it harder to be a small business under the boot of Visa MasterCard duopoly.
But to your point about them being the original gangsters, I was looking at some of the investigations that have been done of Visa MasterCard. And one Visa executive said at a hearing in 2010—this is a direct quote – “We work very closely with our financial institution clients on a daily basis.” And a JP Morgan Chase executive said, “We are in regular communication with the networks, Visa and MasterCard.”
And imagine for a moment, if landlords said that out loud in a public forum, this is practically an invitation for an antitrust lawsuit. And yet, somehow this can be said publicly between Visa MasterCard and the big banks, and somehow we accept it as okay.
TEDDY DOWNEY: And the analogy there being the landlords are talking to RealPage.
CARTER DOUGHERTY: Yeah.
TEDDY DOWNEY: They’re in constant communication with their pricing recommendation.
CARTER DOUGHERTY: Yeah, and I think the key issue is can ostensible competitors work in parallel? Does the system enable that? Because that’s what you don’t want to have a competitive market, right? You don’t want landlords to be able to say, hey, we’re all going to raise our rent by 10 percent so that no renter can do anything about it.
Well, you take a look at what Visa and MasterCard do. They have a bird’s eye view of spending patterns. They share analytics with the bank. And this is no great secret. I’m looking at how Visa and MasterCard market their services to banks. This is all on their website. Card issuers have their own repository of data about merchant acceptance of payment cards and on and on and on. This is not a secret.
But what it enables is this sort of working in parallel of the sort that RealPage enables for landlords. And it’s this combination of information and tight relationships that create what in antitrust lingo is known as a soft coordination problem.
TEDDY DOWNEY: So, in this case, I guess Visa and MasterCard are setting the price, but are they the RealPage in this? Or are they the landlords in this?
CARTER DOUGHERTY: I think they’re a bit more like the RealPage. The swipe fee is network fees plus an interchange fee that goes to the banks. The interchange fees are the larger portion of that.
TEDDY DOWNEY: Got it. So, the banks, the networked banks, are the landlords and the Visa and MasterCard are the RealPage. They’re the software that’s enabling the collusion to occur.
CARTER DOUGHERTY: Yeah, yeah. And I think an easier sort of counterfactual way of thinking about this is think about a system in which banks had to compete for the business of merchants to say, hey, please accept my card. There would be a lot of competitors and they would compete on price. And they would say, hey, if you use my card, the interchange rate might be X percent. Use mine, it will be X minus 10. This sort of price competition simply does not exist.
TEDDY DOWNEY: Yeah. And you mentioned litigation that’s already out there in your paper. What did you think of that? And where do you think we should see more litigation on this? I mean, this is a truly burgeoning field of algorithmic price fixing lawsuits. We’ve seen a novel one in state court in California recently on the Calibrate software around price setting for fuel at the pump. You mentioned a bunch of lawsuits in your paper. Like what do you see of the litigation that is already ongoing with Visa and MasterCard? And what would you like to see in terms of more litigation in this space?
CARTER DOUGHERTY: So, the big ten year litigation going on with Visa and MasterCard is something that I’ve actually—this is one thing I’ve worked on sort of opposing a settlement there. Because it emerged because some merchants sued Visa and MasterCard. Litigation was consolidated. The judge assigned plaintiff’s counsel to do it. And they’ve been sort of going back and forth for ten years about a settlement. But none of the settlements that they’ve come up with have been meaningful structural change.
They basically would impose some bank-friendly limits and Visa and MasterCard friendly limits on swipe fees. So, that litigation shows no promise whatsoever in being able to reach a useful resolution.
The Justice Department under Jonathan Kanter did start the litigation on Visa debit card practices. And that shows a lot more potential. There they had a lot of interesting evidence about Visa’s whole approach of we don’t have competitors. We have partners. And using its war chest to sort of buy off potential competition. It wasn’t that long ago, Teddy, that people thought that PayPal might be a massively disruptive kind of way of payments. And, of course, it never happened.
I think, though, one of the big hurdles we need to get over if we’re going to challenge this system is what I call the tyranny over our minds that says that the system has to be this way. The Visa MasterCard system evolved out of bank cooperatives, which slowly replaced what had been a merchant-centric system where merchants said, hey, let’s have charge cards. If you’re like me, you grew up in the seventies, you remember people talking about charge cards.
And the banks basically slowly took over that system through these cooperatives, Visa MasterCard. And then they also used credit card issuance to sort of break out of the New Deal settlement on finance, which emphasized small local financial institutions, smaller banks, and became nationwide issuers of credit cards and built the system that way. And it was a way of getting past boundaries against business across state lines.
So, for that reason, because the system evolved that way, we’ve come to think of there’s something natural about, oh, you’ve got a payment network. You’ve got a bank. You’ve got this. In fact, technology would enable many, many other options for payments if Visa MasterCard, together with the banks, did not have this sort of collusive system in place in which Visa MasterCard are the dominant networks and five banks are responsible for issuing the cards that used about 70 percent of transactions.
I do think, Teddy, that if you’re going to have a serious legal assault on the system, it’s going to take some very determined antitrust enforcers who can pick apart how this system works. I think I wrote in that piece, it’s a sort of a hybrid of old and new, right? It preserves the old relationships of when Visa and MasterCard were cooperatives, but uses technology to fortify the collusion. To my mind, that’s really going to take a determined somebody, attorney general, Assistant Attorney General for Antitrust, to dig into that, to use subpoena power to really understand those relationships.
TEDDY DOWNEY: And you mentioned a lot of these sort of black box, sort of just negotiations, over how they set the prices. We’ve done a bunch of reporting on that front. That seems to me kind of like smoking gun evidence when they have these price sheets. Why can’t you just subpoena that stuff and present that? What is the weakness? There’s such a lack of transparency on how these prices get set.
And then there are rules, like the Fed is supposed to have rules on how that’s done and why that’s done. It’s supposed to be like, at least for debit, it’s supposed to be tied to cost, the cost of doing it at some level. What do you see in terms of the value of subpoenaing those documents, and also the Fed in terms of enabling the price increases by being sort of asleep at the switch as a regulator?
CARTER DOUGHERTY: So, first of all, solely on the federal issue, you’re alluding to the Durbin Amendment. The Durbin Amendment was passed in 2010. The banks made a big effort to repeal it the following year and failed, barely. And so, the Fed then wrote a bank-friendly regulation that did reduce debit interchange fees, but not by a whole lot, and not by as much as it initially proposed. And the Fed was repeatedly sued about this, is still being sued. Because it basically invented an extra category of costs and said the banks should be allowed to recover this.
And there is some evidence to suggest—remember, this is the time of 2010, 2011, wake of the global financial crisis, where bank profitability equated in the eyes of the captured federal reserve to bank stability. And so, they sort of let through a bank-friendly rule.
Now, on the credit side, there’s transparency and then there’s transparency. Anybody can pull up the Visa interchange schedule and see what card charges what. I dare anybody who’s not a serious specialist—and I spent a lot of time on this and I still find it extremely challenging—to understand the visa rate sheet. And this is typical across finance, to get to my broader role in life, is this weaponization of complexity is really pronounced when it comes to who charges what for credit card fees.
And I’ll add that, and again, an indicator of exactly how competitive this market is. If you are a merchant, it is hard to get the time of day for a visa or MasterCard. Stuff comes down, oh, we’re increasing this fee, and that’s the beginning and the end of it. At no point as a merchant accepting cards, do you have the sense of anybody competing or even really caring about your business. It’s what you feel is an assertion of power.
TEDDY DOWNEY: Unless you’re like Walmart. Unless you’re Walmart, right? Or Target or Costco? And then you like cut your own deals, right?
CARTER DOUGHERTY: There is some evidence of that. It’s not as much as you would expect. The power of financial monopolies is strong. And it’s one reason why I’ve consistently argued that finance is the most powerful industry in the world. And even faced with big players like that, they can mostly get the road. Yes, there has been some nips and tucks. A big retailer like Costco might say, we’re not taking American Express, that sort of thing. There was a time when certain places would only take debit. There’s some flexibility at the margins, but they’re not a systemic solution. And they are no solution at all for a small business.
TEDDY DOWNEY: Well, you also have, they get special treatment from the Supreme Court. The Supreme Court says their regulator is independent, has to remain independent, unlike all the other regulators, which are now—
CARTER DOUGHERTY: Independent of the President.
TEDDY DOWNEY: Independent of the President, yeah. Yeah, independent of the President. Unlike every other regulator now.
CARTER DOUGHERTY: Yeah.
TEDDY DOWNEY: Well, I want to get back to this litigation. So, what is the path forward in terms of the solution here? You’ve got your legislation. You’ve got, at some point, maybe the Fed could take its responsibility more seriously. You’ve got litigation ongoing. Or you’ve got potential for algorithmic pricing, investigation at the state level. Obviously, nothing’s happening at DOJ or FTC for the next two years on this, I would imagine, despite Trump’s social media posts. You’ve got state investigative capabilities. You’ve got private plaintiffs. I mean, going back to the Open Markets event, Elizabeth Warren said, look, the anti-monopoly movement is going to be at the state and local and private plaintiff level.
What are the options for those policymakers and law enforcers and private plaintiff’s firms if they want to tackle this? Is it, look, you got to get your hands dirty and investigate and unwind this, the myriad of interconnections here before we have a good grasp? Or is there any additional solutions that you see for these decisionmakers?
CARTER DOUGHERTY: So, there’s the policy solutions. There’s the legal solutions. I’ll throw out two more that might be useful.
One is the technology. I mentioned earlier that we have other technologies that can facilitate payments. And you only have to look as far as—Brazil’s far away, but look at Brazil. Brazil created a system called Pix, which is a payment system built around a simple pay-by-bank system in which then there’s an interface that people can use on their phones. And it’s become common to say in Brazil, what’s your Pix? Because that’s how you send people money, whether it’s scanning at a retailer or sending to your friends. It’s sort of like a combination of bank plus Venmo, but without all the middlemen that take their chunk of money.
And the Brazilian Central Bank, to their immense credit, they just said, look, this ought to be a net—moving money, which is really all the debit and credit are—moving money should be a negligible cost and we’re going to make sure that’s the case.
Now, I’m under no illusion that we’re going to sort of make a decision to disempower massive financial institutions and Visa and MasterCard sort of overnight. But there are other steps. But there are other steps. Like, for example, the Fed built a real-time payment system called FedNow, often referred to as FedLater, FedMaybe, FedSometime in the future, because they don’t require that banks use it. But that is a potential technological backbone to other forms of payment that flow through your bank without the need for Visa or Master, that essentially would disintermediate Visa and MasterCard, and would allow cheaper payments in real time. I mean, it’s also beyond ridiculous that many payments in this country are still batch payments, right? ACH sort of lumbers over the rails like it’s on a Sunday afternoon walk.
So, that’s the sort of technological change that you could envision a system where there’s FedNow required for all banks and there would be technological interfaces built on top of that. Boom, you could do it.
Also, central bank digital currency would have some similar promise. That is now tied up in sort of endless toing and froing in Congress and frankly, fervent ideological debates about whether a central bank digital currency is a way to spy on you. So, not holding out a lot of hope for that.
A second issue I would mention, and I would definitely consider this a sort of sleeper with some potential, but you never know is you may have noticed when you go to buy, pay for things, restaurants or something, restaurants are starting to now tack on three percent surcharge for use of credit. This reflects a change that’s happened over the past ten years.
Going back 30, 40 years ago, American Express in particular, but other credit cards too, obtained anti-surcharging laws in states that said you can’t surcharge for the use of credit cards. And they were building on an insight—what we now call behavioral economics—that says that people will do more to avoid a loss than they will to acquire a gain, which is why surcharging is bad, but discounting is okay.
And the credit card companies obtained these laws banning surcharging with the exception of filling stations, of gas stations. Which is why you drive around and you’ll see there’s a price for cash and there’s a price for credit because the gas stations were too politically powerful not to get an exemption.
Anyway, over the last ten years, those laws fell and it became possible for merchants to surcharge. This has started to happen in piecemeal fashion, not across the board. But you do see merchants saying, hey, Visa, MasterCard, they charged us outrageous amounts of money for the use of credit cards, so we need to pass this on. And I would not rule out over time that this starts to tarnish the Visa MasterCard brands, where people say, what the hell? Why is this happening?
Again, it’s a long shot and there are real competitive issues there. Because if the restaurant next door doesn’t surcharge, they make it look like it’s not a problem and it’s a competitive issue with the other restaurant. There’s a lot going on there.
And frankly, it’s a substandard solution because it turns the merchants into the toll collectors for Visa, MasterCard and the big banks. And that’s just crazy. Like, if you want to define financialization, it’s like the real economy forced to be toll collectors for finance.
TEDDY DOWNEY: We have some big changes that are happening in California. Rohit Chopra is going to be a new, very powerful regulator there with some CFPB-like authorities. What do you think are the chances that you could see some creative solutions that would open up competition for California, like a California coin or California new rules there to facilitate some change or penalties or what have you? Is that an option?
CARTER DOUGHERTY: So, there have been proposals in the States to attack swipe fees in a more limited way. And the proposals have been that you ban swipe fees for taxes and tips. And the rationale here is that merchants don’t benefit from taxes or tips. Those go to the government or to the workers. And therefore, why should a merchant pay a fee on those?
Now, those have run straight into the teeth of bank opposition, lots of lobbying opposed. They got Jared Polis in Colorado to veto one such law and they sued to oppose a similar law in Illinois. What’s more, the Trump OCC, the Office of the Comptroller of the Currency, has come to the rescue of the big banks and has basically insisted that when fees are set by third parties, that is protected activity by nationally chartered banks and therefore state laws are illegal.
This is the big longstanding debate over preemption, how much the OCC can preempt state laws in the name of preserving the integrity of the national bank charter. And this is all the big banks, J.P. Morgan, Bank of America, Wells Fargo, New City Group. They’re all national banks. What’s really going on here is that the OCC is behaving like a sort of big bank lobby from within the government and they want to preempt these laws. This is now going to be the subject of extensive litigation.
So, I think vibrant state officials, be they enforcers like attorneys general or regulators who can give voice to the problems in the payment system, I think they’re going to play important roles in ideation for ideas that we can use to sort of make the payment system more just, but also litigating. And I would expect that this fight with the OCC is going to be a lengthy one. Preemption stuff always takes forever and goes to the Supreme Court.
But in this particular case, the OCC is making a particularly outrageous claim, which is that any fees that are set by third parties are—any legislation stopping that is preempted by state law. So, they’re opening a Pandora’s box here. They’re saying, banks, as long as you use a third-party to set a fee, it’s all good. And I think that’s going to attract the attention of a lot of state enforcers who do not want to encourage more collusion on bank fees.
TEDDY DOWNEY: Again, if we have listener questions, if you have a question, please feel free, enter it in the chat here or into our Q&A thing on the Zoom. Now, Carter, I know you’re a bit of a student of the OCC. How corrupt is this institution? Historically, or just now, what are we talking about in terms of how in bed this regulator is with its own customers—not customers—the banks that it’s supposed to be overseeing and regulating?
CARTER DOUGHERTY: Quick bit of history is that the banks and the OCC love to talk with reverence about the OCC has been created in the Lincoln Administration, the National Bank Charter, and some former comptrollers even perpetuate what is really an untruth that Congress wanted to change the fragmented banking system. What Congress really wanted to do at that time was create a new market for U.S. government bonds to finance the Civil War. And so, they required these new national banks to hold their reserves in government bonds. So, overnight, there was suddenly a massive market.
And who benefited from that market? Well, Jay Cook and his brother ran the largest U.S. government bond underwriter in the country, and the brother was good friends with Salmon Chase, the Treasury Secretary, and they engaged in what we would today call astroturfing to get this legislation passed.
So, it was a corrupt incarnation from the beginning. And ever since then, the OCC has been a vigorous defender of the privileges of big banks. They did the same thing during the era where there were these fights over the gold standard, silver and everything, always on the side of big banks of preserving their privileges.
Fast forward to now, I had an interesting conversation with Tom Curry, who was appointed to run the OCC after the financial crisis. And he thought that there was good expertise in the OCC, and therefore he took the job. He thought this can be reformed. And once the second Trump administration rolled in and basically invited bank lobbyists in to run the place, he said, I’m really leaning toward the abolition of the OCC. Because I just think it can’t be effectively reformed.
Time will tell. But, I mean, look at the cast of characters. The first Trump comptroller was sort of tucked in there by default. That was a bank lobbyist. The second one was a crony of Steve Mnuchin’s who just wanted to gut the Community Reinvestment Act.
Then it was really hard to get anyone confirmed in the Biden administration. So, there was a Fed official who was the acting comptroller. And now in the Trump administration, we have Jonathan Gould, who’s just a longtime financial services lobbyist. So, it really is nothing but a revolving door and looking for every possible opportunity to do favors for the banks.
TEDDY DOWNEY: Again, if you have questions, please put them in the chat or in our Q&A panel. I want to get back really quickly to how you see—are you looking at the case law when it comes to algorithmic price fixing as, well, if this gets to be more robust and becomes a new avenue for litigation, this could be a solution? Or is it really more the analogy that if the courts are cracking down on this type of collusion, they should be just as willing to crack down on Visa MasterCard?
CARTER DOUGHERTY: Yeah, yeah. So, the third-party aspect of this, where Visa MasterCard function as these sort of price setters, is a challenge. Proving that in a court of law and a legal theory that effectively captures that conduct is a challenge because of the third-party aspect.
It is, however, egregious. And in writing the piece that you referenced, I started to think about this and like popular imagination, I imagined if you had to name a cartel, you’d probably name OPEC, right? And OPEC doesn’t actually set prices. What they do is, in the messy geopolitics of petroleum, they try to manage supply and have a target price, but are constantly grappling with members who don’t abide by quotas and producers outside the system or whatever. And even RealPage doesn’t actually set prices. They just sort of wink and nod as much as they can to their clients, the landlords. Visa and MasterCard, they just set prices.
So, I think the combination of the egregious nature of the conduct and the rising understanding that we’re going to need a legal theory to deal with allegations of third-party-based collusion, I think speaks favorably to coming up with something in the future. But what it is, is another matter.
TEDDY DOWNEY: It kind of reminds me of, in the healthcare space, you have this company called MultiPlan, which is this sort of like third-party. But it’s organized by the big health insurers to set the prices that the insurers are going to pay to the providers, healthcare providers. And that has been sued in different ways over time. First, successfully by Andrew Cuomo as AG in New York for fraud, right? This is not an independent price, right? You’re going around saying this is like some independent price setter, but it’s really just an arm of the insurance industry. And then they’ve subsequently been sued for antitrust. And actually, the insurers are sued and MultiPlan is sued as being in collusion with the insurers.
Obviously, there’s that case that’s sort of out there, that big antitrust case that has been settled. I’m curious if you think maybe fraud for how they represent this as like some kind of neutral third-party price setting.
CARTER DOUGHERTY: The challenge with Visa and MasterCard is the manner in which they are not consumer facing. And here, I mean, this very narrowly, not that a credit card is not consumer facing, but Visa and MasterCard. We don’t use Visa and MasterCard in the sense that we explicitly pay for their services. What we do is we use a card issued by a bank that is routed through this. So, that makes this sort of fraud aspect vis-a-vis the end consumer sort of fades away, right? They’re not the ones explicitly being pitched. So, that is going to be a challenge in barring like outright fraud.
You’ve seen plenty of challenges over time to the practices of credit card companies, credit card issuers. There was significant enforcement by the CFPB under that. But that was not about this core problem of why the payment system is too expensive. That was about explicit fraud of consumers.
TEDDY DOWNEY: Last question. You mentioned Dan Osborn explicitly endorsing this. Are you involved or are you seeing that happen at a broader level? To me, the more immediate risks to these companies seems to be at the legislative level, state, federal legislation, that would entertain one of these solutions that you’re mentioning, as opposed to litigation, which we’ve seen over the years, it just takes so long and ends up getting settled for money instead of systemic reform.
What are you seeing at the political level beyond just the Osborn anecdote? Are you seeing more attention to merchant issues or independent business issues and sort of coming up as a solution here for that constituency?
CARTER DOUGHERTY: Yeah, I think the revival of the anti-monopoly movement over, we’ll say roughly the past ten years, that was at the OMI conference that you mentioned, that was referenced. It was ten years ago that Elizabeth Warren gave a landmark speech saying we need to reinvigorate antitrust enforcement. That has provided, I will say, the music to the lyrics of what small merchants have always said about Visa and MasterCard, which is big entities crushing smaller ones.
And I think that is fundamentally different than the way merchants would have talked about the problems of Visa and MasterCard and the big banks, say, 11 years ago. It’s taken a while for that sort of language of power and of this being important for decentralization and democracy. And that lends a sort of vocabulary and ethos and really a long-term drive to the effort to reform the payment system, and particularly to deal with these anti-competitive practices.
On a more concrete level, it is probably safe to say that the Visa and MasterCard and the big banks benefit from dysfunction in the United States Congress because it’s very hard to move legislation independently right now. The schoolhouse rock version of, oh, the House passes it and the Senate passes it. They have a conference committee and then they pass the final bill and the President signs it.
In reality, most legislation is getting passed either because it has to pass like budget or is deemed politically necessary to pass like the National Defense Authorization Act. And then there are efforts to attach it to things. So, I think that’s the pattern you will continue to see in the sort of the legislative dysfunction we have.
But it is not a trivial chance that this legislation passes relatively soon. This is a high priority for a lot of small merchants and they make their voice heard and they have the sort of greater motivation to do it now that there’s something concrete to attach to.
I will also add, in order to toot the horn of my employer, Demand Progress, and other anti-monopoly and consumer groups, is that one of the things we very much want to do is lend legitimacy to the claims by small business that this is a problem by pointing out that it is also a problem for consumers and for competition. And we want to be a voice that can weigh on the scales toward reform in the name of smaller merchants. This is an area where we think that the interests of anti-monopolists and consumers are very, very much aligned and we’re willing to fight for that alongside them.
TEDDY DOWNEY: And last question, you mentioned the importance of having Republican and bipartisan backing. Obviously, you’ve got the Trump administration, Trump himself saying at least ostensibly through social media, he’s behind the bill. What is the politics of the other Republicans that support the legislation? Are they doing it to help merchants? Are they doing it to whack the banks? Like what is the political impetus for Republicans? Which it’s the party of big business. I don’t think it’s unfair to say that generally. But so, these outliers from the party, what are their politics and why are they supporting the bill?
CARTER DOUGHERTY: Yeah. So, Senator Marshall, I think, is a guy who came down on the side of merchants in this fight. He thought they had a good case. I will add that the banks did not endear themselves to Senator Marshall by running ads against him in Nebraska and just sort of criticizing the whole idea. There was some unknown entity that ran a weirdly anti-woke, homophobic thing that targeted Marshall that did nothing but cultivate bad will. Kansas doesn’t have any banks over a hundred billion dollars. So, it’s not like there’s some Kansans particularly opposing the legislation. It was outside money from Visa, MasterCard and the big banks.
I think in other cases, I was talking one time to the staff of a Republican Attorney General, who just said in general, his boss was always very sympathetic to the small business merchant thing and did not see any particular reason per se to align with big banks and Visa, MasterCard. And that was another state that is not home to big banks or big networks.
So, the Republican, there are those sort of interests that they have. But I think to get back to why anti-monopoly is having a generational moment and why it has had legs in American history, it’s because nobody’s trying to argue as an anti-monopolist that the government should tell anybody how to run their business. They’re simply saying that everybody should have a fair shot. And I think that fairness receptor, that sense that everybody deserves their shot, is a very powerful idea in this country. It won’t die. You can’t kill it no matter how much you lobby or spend money on it. And that’s going to persist. And that’s what we’re going to hang onto.
TEDDY DOWNEY: Well, I can’t think of a better way to tie up this call. Carter, it was a really interesting paper that you did. I encourage everyone to take a look. Thank you so much for taking the time today.
CARTER DOUGHERTY: Thank you for having me, Teddy.
TEDDY DOWNEY: And thanks everyone for joining the call. You can find us at Second Request Podcast. Obviously, Carter will be up there shortly and you can check out our TCF Investigates Podcast on The Capitol Forum Podcast channel. So, please check that out when you get a chance. Thanks again to everyone for joining us today. This concludes the call. Bye-bye.
