Community banks like mine offer essential services across America to consumers and small businesses, including credit card programs that provide real advantages like local customer service, reward programs, and fair terms. Those services face a significant threat from big-box retailers and their allies in Congress, who want to enact harmful new regulations on credit cards.
Recently reintroduced legislation from Sens. Dick Durbin (D-Ill.) and Roger Marshall (R-Kan.) would grant large retailers the authority to process credit card transactions based solely on which network offers them the lowest cost, regardless of service levels or security. While this policy would allow billion-dollar retail giants like Walmart and Target to reap substantial financial gains, it would do so at the expense of consumers and community banks.
First, the Durbin-Marshall bill 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, fair lending, and privacy standards that apply to highly regulated community banks. Allowing merchants to choose their network would likely lead them to use the least costly method for them, not the one that is most secure for consumers — with the Congressional Research Service and a Texas A&M study warning of higher incidences of fraud under the proposed new system.
Mega-retailers like Walmart and Target might be indifferent to the impact of this bill on security, but that’s because they don’t bear the consequences. After all, when criminals fraudulently spend money at one of their stores, community banks and other financial institutions ensure their customers are made whole.
The credit card routing changes under the Durbin-Marshall plan are designed to apply to the largest banks, but the measure would require all banks to subsidize the costly changes it would impose on the payments system, including reissuing new cards and covering the increased incidence of fraud. These costs could drive small issuers — including the community banks that make roughly 60% of all small-business loans under $1 million and more than 80% of the banking industry’s agricultural loans — to exit the credit card business altogether, limiting choice and access in local communities.
Ultimately, the Durbin-Marshall plan fails to account for the popular service that card payments offer merchants and consumers alike. The convenience and security of card payments — as well as the financial benefit of rewards programs — are why 83% of shoppers prefer to pay with cards, spending up to four times as much as they do when paying with cash, Capital One reports.
In my community of Bismarck, N.D., my son’s high school booster club uses card readers for basketball and football concessions because many consumers don’t carry cash and expect to be able to pay with cards. As a result, our booster club has seen a significant increase in sales since it started accepting cards, validating nationwide data.
Further, I’ve had lengthy conversations with a regional retailer based here in North Dakota that also opposes the Durbin-Marshall plan due to the risks the bill poses, especially to its reward card program. Forcing community banks like mine out of the credit card business and affecting reward cards for regional and small retailers will only further skew the uneven playing field small businesses already compete on.
Make no mistake: the largest retailers are the sole beneficiaries of the Durbin-Marshall plan, which provides no benefit to small and midsized merchants. University of Miami research shows retailers with $500 million or more in annual sales would reap virtually all savings from the legislation, with little going to small businesses. The largest merchants would benefit because they can use their massive commercial power to demand pricing concessions from competing payment networks, while small businesses would suffer more than $1 billion in lost card rewards. Overall, the bill would damage the broader economy, with an Oxford Economics study projecting $227 billion in lost economic activity and approximately 156,000 lost jobs.
We’ve been through these failed policies before. The Durbin Amendment, which enacted debit card routing mandates as part of the regulation-heavy Dodd-Frank Act, was sold to lawmakers as a solution to help lower costs for small businesses and consumers. The reality is that the Durbin Amendment resulted in virtually no savings for consumers. The Federal Reserve Bank of Richmond reports that 98% of merchants raised their prices or kept them the same in the wake of the Durbin Amendment. Ultimately, debit card routing mandates resulted in higher fees on debit cards, severely diminished debit rewards for consumers, and hurt small businesses by requiring them to fund massive upgrades in technology.
If Durbin-Marshall is implemented, consumers across America can expect reduced access to credit, diminished benefits, and compromised payment security. Rather than interfering in the marketplace to line the pockets of big-box retailers, Congress should reject this misguided legislation.
