OPINION: Proposed Credit Card Competition Act Will Negatively Impact Credit Cardholders
Originally published in the Credit Union Times
A new piece of legislation regarding credit cards has been introduced in the U.S. Senate. The proposed Credit Card Competition Act of 2023 (CCCA) targets credit card interchange income that issuers receive to offset costs and provide benefits in offering credit cards to their customers.
If this legislation passes, it will severely limit the benefits that cardholders receive from using credit cards and could fundamentally change how consumers can use their credit cards in future. The legislation will hurt small financial institutions like credit unions the most, limiting their ability to even offer members a credit card. I oppose this harmful legislation and believe consumers should, too.
Though it has a consumer-friendly name and is framed as beneficial to consumers by its supporters, this is simply not the case. The legislation could ultimately lead to the removal of card rewards programs in many cases and negatively impact how cardholders deal with credit card fraud.
The CCCA mandates that banks and credit unions offer retailers a choice of two unaffiliated networks to process credit card transactions. Supporters of the CCCA maintain that having two networks to process credit card transactions will lower the costs retailers pay and, in turn, the retailers will pass on these savings to their customers.
Those are two very large assumptions that consumers should question.
While the supporters of the legislation say it will increase competition and lower prices, that only applies to fees paid by retailers. And the legislation provides no guarantee that retailers will pass their savings on to their customers. In fact, less than 2% of retailers have passed on savings after gaining similar regulation, according to the Federal Reserve.
Instead, the bill would end the competition that currently exists between credit card issuers that drives rewards programs and cardholder benefits. Currently, issuers use those reward programs and benefit offerings to maintain card loyalty or to attract new customers.
It is important to remember how credit unions use the 2-3% in transaction fees they receive from retailers (the average credit card processing fee is 2.24%, according to the Merchants Payment Coalition). Currently, they use the transaction fees to create and maintain strong credit card services that have very popular reward programs and robust customer service. Credit unions do not pocket the fees, they use them to the benefit of members. Absent those fees, their card services will suffer and the services they give their members will be lessened if not eliminated.
Again, we know that the CCCA will have negative impacts to consumers because similar legislation passed in 2010 that radically altered the benefits of debit cards and bank services that consumers received. The 2010 Durbin Amendment to the Dodd-Frank reform legislation gave the federal government the ability to limit interchange fees charged to retailers for debit card processing. Though opposed by consumers, banks and credit unions, the legislation was passed and consumers were hurt by it. Prior to 2010, banks and credit unions used the interchange fees to offer debit rewards and free checking services. Now, most consumers and credit union members do not receive rewards on debit cards and free checking accounts are limited.
The CCCA will also severely impact how consumers will deal with fraud or other security efforts. Currently, banks and credit unions monitor and manage fraudulent charges and claims. Absent a funding source – the 2-3% interchange fee retailers pay to accept credit cards – credit unions will have fewer resources for programs that alert consumers to potential fraud and will be limited in their ability to remove fraudulent charges from accounts. Simply put, credit unions will no longer have the means to intervene on matters of fraud as they do today. Over time, credit cardholders may be forced to oversee potential fraud on their own.
The CCCA, if adopted, will change the nature of credit card usage in this country. It will substantially hinder competition between credit card issuers that benefits consumers and replace it with a program that makes retailers more profitable. It may also reduce the widespread use of credit cards. If there is no benefit or reward for using a credit card and it is not backed by security and service for the user, it will lessen the use of credit cards and eventually acceptance.
In 2023, consumers have the ability, through rewards programs, to create value whenever they make a purchase with a credit card. They have protections and benefits ranging from airline seat upgrades, companion fares, free baggage, rental car protection, cash back, damaged item protections and more. If the CCCA passes, these programs will either disappear or cardholders will have to pay steep annual fees to keep them.
For credit union members and all credit cardholders, the choice is simple. Contact your local U.S. Senate and House members and tell them to vote against the CCCA.
Moreover, credit unions need to be proactive and get the message out about what this legislation will really mean to local business and consumers. We need to hear from:
Small businesses willing to speak up about how credit cards help their business thrive.
Credit union staff who understand the ins and outs of their credit card programs.
Credit union leaders and members who are willing to author op-eds and letters to the editor in their local paper about interchange issues.
Credit unions, particularly local credit unions, will be hurt the most by the CCCA. They oppose this legislation because it will limit their ability to provide credit cards to their members and restrict the security and service they provide. Join me in opposing this legislation.