U.S. Sens. Dick Durbin (D-IL) and Roger Marshall (R-KS) introduced legislation to enhance competition and choice in the credit card network market.
The Credit Card Competition Act of 2022 would direct the Federal Reserve to ensure that giant credit card-issuing banks offer a choice of at least two networks over which an electronic credit transaction may be processed, with certain exceptions.
“Credit card swipe fees inflate the prices that consumers pay for groceries and gas. It’s time to inject real competition into the credit card network market, which is dominated by the Visa-Mastercard duopoly,” Durbin said. “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.”
There are currently four U.S. credit card networks — Visa, Mastercard, American Express, and Discover. Visa and Mastercard act as agents for thousands of card-issuing banks and mandate the fees and terms that the banks receive from merchants for each transaction. The lawmakers say the merchants have effectively no leverage to negotiate fees and terms because they cannot risk losing access to all the consumers served by Visa’s and Mastercard’s member banks.
If passed, this bill would require the Federal Reserve to issue regulations within one year, ensuring that banks with assets over $100 billion cannot restrict the number of networks on which an electronic credit transaction may be processed to less than two unaffiliated networks. Further, at least one of the networks must be outside of the top two largest networks – Visa and Mastercard. The lawmakers said this would inject competition into the credit card market, opening the door for new market entrants such as current debit-only networks. Also, they say it would encourage innovation, enhance security, and exert competitive constraints on Visa and Mastercard’s fee rates.
“When it comes to Main Street vs. Wall Street, I’ll choose Main Street every time,” Marshall said. “Convenience stores, gas stations, and other small businesses in Kansas are being taken advantage of by Visa and MasterCard on behalf of big banks in New York City at a time when they, and the communities they serve, are grappling with crippling inflation and staring down the barrel of a looming recession. It’s gone on long enough. Competition is the heartbeat of capitalism, and that is what our bill will create – competition.”
According to the Federal Reserve, Visa and Mastercard account for nearly 576 million cards or about 83 percent of general-purpose credit cards. Approximately $3.49 trillion was transacted on Visa and Mastercard credit cards in the United States last year, with a total of $77.48 billion charged in merchant credit card fees.
The National Federation of Independent Business (NFIB) supports the legislation. “NFIB members support increased competition for credit card processing networks,” Jeff Brabant, senior manager, Federal Government Relations, NFIB, said. “Competition will result in lower fees, which have increasingly cut into the razor-thin profit margins of small businesses.”
However, the Credit Union National Association (CUNA) opposes it, saying it poses a threat to consumers’ financial data by allowing retailers to bypass established secure payment networks.
“The so-called Credit Card Competition Act is nothing more than a massive financial windfall for big box retailers at the expense of consumers,” CUNA President and CEO Jim Nussle said. “This legislation would jeopardize access to safe, affordable credit. CUNA, Leagues, and credit unions will fight against any legislative changes to the current operation of credit and debit cards.”