The bicameral Credit Card Competition Act reintroduced last week by legislators on both sides of the aisle, including Sens. Dick Durbin (D-Ill.), Roger Marshall (R-Kan.), Peter Welch (D-Vt.), and JD Vance, R-Ohio, and Reps. Zoe Lofgren (D-Calif.) and Lance Gooden (R-Texas, seeks to build on debit card competition reforms enacted by Congress in 2010 by directing the Federal Reserve to require large banks with assets over $100bn that issue credit cards to enable at least two credit card networks to route financial data for purchases.
The legislation would require that the credit card networks must be unaffiliated – a specification that takes aim at the “Visa-Mastercard duopoly” that “controls over 80% of the US credit card network market – more than 576 million cards,” and empower retailers to negotiate terms, conditions and fees associated with accepting credit cards.
“Most consumers don’t know it, but big banks and card networks like Visa and Mastercard charge merchants more than 2% of the customer’s total bill every time a credit card is used to make a purchase. Credit and debit card swipe fees have more than doubled over the past decade and soared 16.7% in 2022 alone to a record $160.7b. They are most merchants’ highest cost after labor – far too much to simple absorb – and drive-up consumer prices by more than $1,000 a year for the average family,” The Merchants Payments Coalition argues in a letter sent to Congress June 7.
The fee often is higher than grocers’ profit margins, which averages 1-2%, FMI – The Food Industry Association adds in a separate letter sent to Congress the same day.
These higher prices “disproportionately [hurt] lower income Americans, those who rely on cash, and those who do not have access to high credit card rewards,” FMI explains, adding, “The current credit card market leaves lower income Americans paying for bloated credit card rewards they will never enjoy.”
The fees charged by credit cards often cover reward systems that they use to entice Americans to carry and use their cards.
The current system also disproportionately impacts small businesses, including independent grocers with which Visa and Mastercard will not currently negotiate fees, Christopher Jones, senior vice president of government relations and counsel at the National Grocers Association, said in a statement.
FMI argues that the current legislation not only would give retailers more negotiating power, but “requiring more than one routing network or pathway would foster competition and security and redundancy – bringing down the cost of the swipe fees, increasing transparency of terms, encouraging innovative services and fraud protection, and ensuring another pathway should the one existing pathway be unavailable or clogged.”
‘A back-door price control on credit card interchange fees’
The legislation may not bring the degree relief to small retailers and consumers that advocates portray, countered The National Association of Federally-Insured Credit Unions.
In an editorial published on RealClearMarkets.com NAFCU President and CEO B. Dan Berger argued the Credit Card Competition Act would impose an “arbitrary cap” and “a back-door price control on credit card interchange fees” that would compromise other services and savings offered by credit cards.
He also argues any savings retailers gain through negotiations would not be passed on to consumers as promised, as demonstrated following the passage of similar legislation in 2010 under the Durbin Amendment enacted under the Dodd Frank Act.
“According to analysis from the Federal Reserve, these caps took over $100bn in revenue away from financial institutions and were a leading cause of the decline in free checking accounts offered by credit unions. Lower debit costs gained by those big box retailers were not passed on to consumers as they promised. Instead, the big box retailers pocked almost all of those savings and used them for executive bonuses and stock buybacks,” he claimed.
He also argued that the change would harm small retailers as they would need to adopt new point-of-sale hardware systems to accommodate for the mandates.
FMI countered that the legislation does not cap credit card fees or set prices.
“There is no heavy hand of government or price fixing, just the simplest of competition – requiring two networks to coexist on credit cards just like they have been on debit cards for more than a decade,” it argued.
Does broader support indicate better traction?
This is the second time this legislation has been introduced – the first was last summer – but this time it has additional co-sponsors, suggesting growing support and an increased chance of success.
The prior legislation stalled in the Senate Banking Committee where it did not come to a vote.