Durbin’s Broken Promise

In 2010, Senator Richard Durbin (D-IL) promised that the restrictions he imposed on debit cards through his eponymous amendment to the 2010 Dodd-Frank Wall Street Reform Act would not extend to credit card companies. Durbin reasoned that because credit card companies faced greater risks from consumers defaulting, they warranted less regulatory scrutiny. 

Fast forward 12 years, and Durbin has broken this promise by introducing the Credit Card Competition Act, which, if passed by Congress, would fundamentally restructure the credit card industry and deny consumers significant benefits. Specifically, CCCA would prohibit exclusivity agreements on which transactions can be processed. Durbin believes that by banning exclusivity, merchants can save money on interchange fees that “inflate the prices that consumers pay for groceries and gas.”  

In a press release announcing the legislation, Durbin stated, “this legislation, which builds upon pro-competition reforms Congress enacted in 2010, would give small businesses a meaningful choice when it comes to card networks, and it would enable innovators to gain a foothold in credit cards. Bringing real competition to credit card networks will help reduce swipe fees and hold down costs for Main Street merchants and their customers.”

Unfortunately for consumers, Durbin’s plan to increase federal regulation of credit card transactions will only risk their financial security while simultaneously preventing companies from offering popular rewards programs that primarily benefit lower-income Americans. Congress must rebuff such dangerous and misguided efforts. 

Every time a consumer initiates a debit or credit card transaction, the issuing bank and card network will charge the merchant an interchange fee, more commonly known as a swipe fee. These fees vary by bank and card issuer but range between 1 and 3 percent of the transaction. According to data from The Nilson Report, U.S. merchants paid an estimated $77.48 billion in interchange fees in 2021. 

Given the large sums merchants paid in interchange fees, it’s no surprise that Congress has expressed an interest in intervening. 

While interchange fees generate substantial sums for U.S. banks and networks like Visa, Mastercard or American Express, they are an essential part of the banking ecosystem, enabling investment in cybersecurity and fraud detection and covering the costs associated with fraudulent transactions. When global cybercrime is estimated to cost $10.5 trillion by 2025, government-mandated price reductions, which would diminish revenues for banks and payment networks, would make it easier for bad actors to access sensitive financial information. 

Prohibiting exclusivity on processing networks would also make it impossible for co-branded credit cards and rewards programs to exist. Co-branded credit cards, which were once almost exclusively offered by airlines and hotels, have proliferated over the last few years, with “household names including Apple, Expedia, PlayStation, and Uber all have cards bearing their names.” These cards typically offer consumers rebates “based on a percentage of purchases or transactions, and the percentage often varies depending on whether purchases were made with the co-branding party or another entity.” However, these rebates are only possible because of exclusivity agreements, which CCCA would ban, between financial institutions and private businesses. 

Research from the American Bankers Association has shown that the loss of these programs would disproportionately harm lower-income Americans. Their research has shown that while “cardholders across all income groups use and benefit from rewards cards,” 77 percent of low-income Americans “have an active rewards card.” Prohibiting exclusivity agreements that form the bedrock of reward programs would, therefore, disproportionately harm lower-income Americans. 

While Senator Durbin believes CCCA would help small merchants who are forced to pay interchange fees to banks and payment processors, the reality remains that further government intervention will cause more harm to American consumers. The bill would deny banks and payment processors the ability to make essential investments in cybersecurity and cut off rewards programs that mainly benefit low-income Americans. 

Congress must reject such misguided and dangerous proposals. 

Edward Longe is a Policy Manager at the American Consumer Institute, a nonprofit educational and research organization. 

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