In 2010, a Democrat-controlled Congress, as part of the sweeping Dodd-Frank legislation, implemented price controls and routing regulations on debit card transactions. More than a decade later, big-box retailers and merchants have become increasingly vocal in seeking to extend these same requirements and restrictions to credit cards, lobbying lawmakers under the guise that the changes are “pro-consumer.”
However, following the passage of the 2010 law, consumers experienced a significant reduction in debit card benefits. Rewards programs and perks like zero-liability protection, free checking accounts, and text message alerts became increasingly rare. Likewise, debit card security declined—not because major networks cut protections, but because merchants opted for cheaper networks which often lacked the safeguards present in the larger, more technologically advanced platforms. In addition to the consumer impacts, the legislation’s effects reverberated throughout the electronic payment marketplace, with particular consequences on community institutions, credit unions, and small businesses.
Under the latest proposal—an expansion of the Durbin Amendment to credit—the government would now mandate that more than one payment network be required for each credit card transaction. As with debit, this change would effectively take the choice out of the consumer’s hands and allow retailers to choose the payment networks through which consumers’ credit transactions are routed.
While past supporters of the Durbin Amendment portrayed it as pro-consumer and said that capping the debit card interchange fees would save consumers billions, it instead allowed big-box retailers to make record profits. All the while, small businesses, credit unions, consumers, and banks suffered the consequences of heavy-handed regulation. For example, a 2014 analysis by the Federal Reservefound that only 1.2% of merchants reduced their prices for consumers in the aftermath of the Durbin Amendment.
So, how would expanding this policy to credit further harm the economy—and what impact would it have on your daily life?
To best answer those questions, consider the following hypothetical. Imagine you approach a Coca-Cola vending machine to purchase a can of Coke. You insert your money, press the appropriate button, and hear the satisfying clunk as the machine vends your beverage. But when you reach into the dispenser to collect your Coke, you are surprised to find that you received an RC Cola instead. In fact, you soon learn that the government is now forcing Coca-Cola to stock all its machines with sodas from other brands.
You would likely be frustrated at this development—and rightfully so. After all, you purchased a Coke for a particular reason and expected to get what you paid for. But not only did that not happen, you now also lack the power to make your own decisions. You, the consumer, are essentially at the mercy of the merchant provider; and what you see is not necessarily what you get.
If that sounds like a poor policy to you, here’s the bad news: expansion of Durbin Amendment routing requirements would do the same thing to credit cards. Chances are, you have reasons why you like using one card network over another. Much like how you might prefer the taste of Coke to RC Cola, you might also favor one rewards program or payments security system over that of a different network. And when you use your credit card, you naturally expect to receive the benefits you signed up to get. But should lawmakers choose to implement credit routing requirements, that wouldn’t be the case.
Merchants, empowered to choose the networks that best suit their interests, would doubtlessly select the cheapest options without regard to what consumers value most. But these cheaper networks often lack the latest security technologies that make the more expensive routing networks valuable. The result would be a race to the bottom in which credit card networks are forced to lower their prices to compete. Lower prices would, of course, benefit retailers, but at the cost of weakened cybersecurity and fewer credit card rewards—both of which consumers depend upon.
Over the last decade, the Durbin Amendment has cost card issuers a stunning $106 billion. Small banks and credit unions have endured declining revenues, while consumers have faced the diminishing utility of their debit cards. And now, big-box retailers and lawmakers are looking to impose further harm on small businesses and consumers by extending routing requirements to credit cards. This would, without question, be a serious legislative blunder that would ripple through the American economy. Consumers simply don’t deserve to have their choices stripped from them. If you wouldn’t accept it from a vending machine, you certainly shouldn’t when it comes to your credit cards.
