Thousands of consumers spoke out against the bill, as did the community banks and credit unions, which would have lost critical revenue needed to provide credit and rewards programs. Thankfully, the bill died on the vine as both Democrats and Republicans recognized it as the money grab it was.
This isn’t the merchant community’s first time trying to pass their costs on to consumers using the long arm of government. They successfully lobbied Senator Durbin and others to institute a price control on debit card interchange fees as a part of Dodd-Frank in 2010, essentially giving retailers billions of dollars each year. Predictably, it led to an array of negative consequences, including the loss of free checking, the disappearance of debit rewards programs, and increased fraud.
In fact, the routing mandates in Dodd-Frank contributed to debit card fraud increasing 60%. Many lawmakers have seen these effects firsthand in their districts. Local credit unions and community banks lost revenue, and constituents became victims of fraud. But these consequences are worth it to the big-box stores, which stand to gain billions by lobbying for more control—despite their already record earnings.
Businesses, especially small businesses, have had a bumpy few years. But retailers—especially large retailers—are doing well. The National Retail Federation, one of the groups who supported Durbin’s failed bill, noted in its own press release that “retail sales during 2022’s November-December holiday season grew 5.3% over 2021 to $936.3 billion” and even Valentine’s Day sales are supposed to be “one of the highest spending years on record.” Yet these retailers have continued to push for cost-cutting measures that would hurt consumers and change the credit card market for the worse.
If the “Credit Card Competition Act” had passed, every consumer who uses a credit card would have paid the price. Millions of Americans across all backgrounds use and enjoy rewards programs. Most people own at least one credit card, including those who are low-income. Of credit card holders, 98% have a rewards card. One popular option is earning travel rewards, whether it be airline or hotel points.
With increasing concerns about inflation and layoffs, more consumers are relying on rewards to help stretch their budgets. According to a recent Morning Consult poll, consumers are concerned about travel costs, and a growing number are looking to their points to help fund travel. This is just one example of rewards benefitting consumers. Others choose to focus on cashback, helping tight budgets stretch a bit further. The legislation would have made these types of benefits impossible.
The proposed legislation would have also severely impacted smaller financial institutions like community banks and credit unions. These organizations spoke out loudly against the bill because they knew their livelihood and ability to serve their towns were at risk. Handing over interchange revenue to big-box stores would have decimated their business models and caused a ripple effect throughout the economy. Erasing this revenue would have forced smaller banks to severely limit the loans they provide. Small business and consumer loans are key to a thriving, growing economy.
Financial institutions large and small also spoke out against the bill as it would have put payment security at risk. Investing in predictive fraud software and next-generation technology is expensive and requires millions of dollars. These investments help keep consumers’ dollars safe. The so-called Credit Card Competition Act would have undermined the ability for financial intuitions to make these critical investments, giving criminals another leg up. 170 organizations have spoken out against this bill—everyone from airlines to fintech companies to small non-profits. Most people saw it for what it was and knew how it would hurt consumers and the economy.
Thankfully Congress refused to take up this legislation last year, and that’s where it needs to stay. In the past.
