A bipartisan group of senators introduced legislation this week that seeks to increase competition in the credit and payment processing space.
Essentially, the Credit Card Competition Act seeks to open up competition and end the duopoly that Visa and Mastercard have had, according to the lawmakers. Visa and Mastercard control over 80 percent of the credit card market and in April of 2022, they increased swipe fees, despite requests from Congress and the business community not to. Higher swipe fees not only hurt merchants, but consumers, the senators said.
“When it comes to Main Street vs. Wall Street, I’ll stand with Main Street businesses, who are the backbone of our economy, every single time,” U.S. Sen. Roger Marshall (R-KS), one of the bill’s sponsors, said. “At a time of economic uncertainty and skyrocketing inflation, these credit card companies are increasing their hidden swipe fees and price gouging small businesses and consumers. Our legislation would rein in the big banks and the credit card industry, drive down costs for convenience stores, gas stations, and other small businesses, and ultimately pass those savings down to consumers.”
Joining Marshall in sponsoring the bill are Sens. Dick Durbin (D-IL), Peter Welch (D-VT), and J.D. Vance (R-OH).
“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.”
The Credit Card Competition Act would direct the Federal Reserve to issue regulations that ensures that banks in four-party card systems that have assets of 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 which must be outside of the top two largest networks – Visa and Mastercard. The lawmakers said this would inject real competition into the credit card market and open the door for new market entrants.
The bill is supported by several organizations including the American Beverage Licensees, Energy Marketers of America, National Association of College Stores, National Association of Convenience Stores, National Association of Theater Owners, National Grocers Association, National Restaurant Association, National Retail Federation, and FMI-The Food Industry Association, among others.
“Due to a lack of competition, credit card companies have been able to exponentially increase hidden processing fees over the last decade. These fees are most retailers’ highest business expense after labor and rent. By requiring more than one network option on credit cards, the Credit Card Competition Act would foster competition and transparency in the credit card market so that card networks would have to compete for business on fees and terms – just as we compete for our customers’ business,” Leslie Sarasin, president and CEO at FMI, said.
However, there are also several groups in opposition to the bill, including the Independent Community Bankers of America (ICBA).
“Applying routing restrictions to credit card transactions would expand the Durbin Amendment’s government-orchestrated transfer of income from consumers to the nation’s largest retailers, such as Amazon and Walmart. According to Federal Reserve Bank of Richmond data, large retail merchants have pocketed $106 billion in interchange fees funneled to them by the Durbin Amendment—violating their pledge to pass the windfall to consumers,” ICBA President and CEO Rebeca Romero Rainey said.
Rainey also contends that the bill could end some credit card rewards programs by preventing card companies from funding them.
“Further, expanding the Durbin Amendment would hand over the security of the nation’s credit card system to merchants — which are not required to meet the same rigorous data security standards, fair lending, and privacy laws that apply to highly regulated community banks,” Rainey added.