This doesn't make sense to me. It's not the behavior of the credit card company that's a problem here. It's the behavior of the merchant. He's quoting the same price to people who pay with cash and people who pay with credit, even though he makes more money on the people who pay with cash.
Why is he doing that? He should be offering them a discount or something. Heck, why is he absorbing the transaction fees and folding them into prices in the first place? Doesn't that just make his prices look bad? Shouldn't he pass the fees on transparently?
That's all that would be needed for competition. Not regulation. The people doing the paying just need to see the price.
This is why government action seems reasonable in this case. You can make the argument that we shouldn't have ended up with an effective duopoly, that regulation should be lighter to allow more competition that would drive out this sort of 'rent-seeking' behavior, and I'd be sympathetic. Unfortunately I don't think that sort of wider overhaul is politically possible, and even patching up the existing regulations with yet more seems better than doing nothing.
My understanding is that credit card companies often have terms that forbid the companies that use the from charging differently for customers using cards than customers using cash.
Why is he doing that? He should be offering them a discount or something. Heck, why is he absorbing the transaction fees and folding them into prices in the first place? Doesn't that just make his prices look bad? Shouldn't he pass the fees on transparently?
That's all that would be needed for competition. Not regulation. The people doing the paying just need to see the price.