Editorial: Don't Be Fooled By the Anti-Consumer 'Credit Card Competition Act'

Originally published on RealClearMarkets.com. Written by B. Dan Berger, President and CEO, NAFCU.

Americans continue to struggle with inflationary pressures every day, whether it’s at the gas pump or in grocery stores. Many credit unions are seeing this affect their members, especially when it comes to spending. While Main Street small businesses and families across the country struggle financially, big box retailers are continuing to hike up prices, ignoring ways to alleviate pressures for consumers.

This begs the question: Why are Senators Dick Durbin, D. Ill., and Roger Marshall, R. Kansas, providing a bailout to greedy retailers in the recently introduced Credit Card Competition Act of 2022? While the name of the legislation sounds good, it’s actually stifling competition at the expense of consumers.

The bill targets the fees big box retailers and e-commerce giants pay when a consumer swipes their credit card during a purchase. These fees are a critical source of revenue for the card issuing financial institution because it helps maintain system improvements, ensure online transaction safety, mitigate consumer fraud losses, and most importantly, grant financial institutions the ability to offer affordable financial services products, like checking accounts and credit cards, to their consumers.

As the President and CEO of The National Association of Federally-Insured Credit Unions (NAFCU), I can attest that the Credit Card Competition Act is an expansion of an already failed policy, the Durbin Amendment that was enacted as part of the Dodd Frank Act of 2010, which imposed an arbitrary cap on interchange fees on debit card transactions. According to analysis from the Federal Reserve, these caps took over $100 billion 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 pocketed almost all of those savings and used them for executive bonuses and stock buybacks.

The Credit Card Competition Act aims to expand the government’s interference in private market interchange fees by creating a new routing mandate for credit cards, essentially imposing a back-door price control on credit card interchange fees. It would allow the same big box retailers and e-commerce giants that pocketed the Durbin Amendment savings at the expense of the consumers they claimed to champion, to use multiple, cheaper, untested, and less secure credit card networks to process payments during a credit card transaction.

Retailers would have the ability to choose which networks process all credit card purchases, for their own financial benefit, while erasing consumers’ choice and any expected reward points during transactions and exposing them to increased risk, all without any consequence. The bill would unwillingly lower credit unions’ defenses when safeguarding consumer transactions and cause them to spend more money to maintain those necessary programs – the same money that would otherwise be used to increase access to financial services for those who need it most.

Labor Credit Union’s Thomas Domingue explained the implications well, stating, “This legislation will have a significant detrimental impact on our ability to continue providing services to underserved areas and groups within our membership… For every $0.10 reduction in interchange income this results in $1 being removed from our ability to lend to those in need, or to provide critical services such as checking accounts for free.”

The impact is real. And if that isn’t enough, mom-and-pop shops, who are already struggling to keep their business running, would now be expected to adopt new point-of-sale hardware system to accommodate for the mandates. The time and resources it would take to implement this policy would be exponential compared to the little benefit it would have on Main Street small businesses.

Americans are already feeling the heat of inflation. They don’t need added concerns about where their transactions are being routed and whether they’re safe. They don’t need less access to affordable financial services products, they need more. Senators Durbin and Marshall should know that now is the time to protect consumers and preserve their financial health, not put them in harm’s way to line the pockets of big box retailers with another bailout bill.

This week, we’re hosting our annual member fly-in, NAFCU’s Congressional Caucus, where credit unions will meet with their lawmakers and ask if they seriously want to reengineer the entire payments system to benefit an already prosperous group at the expense of small financial institutions and consumers? On behalf of credit unions and their 133 million members across the country, NAFCU is saying “No” to the Credit Card Competition Act, and we urge you to do the same.