By Jack Younis

 

 

Flights and hotels, internet services and office supplies, groceries and gas – the variety of rewards available to credit card holders are practically endless.[1] But with the recently introduced Credit Card Competition Act of 2022 (CCCA), credit card monoliths like Visa and Mastercard may threaten to reduce the multitude of benefits cardholders receive. [2] While primarily aimed at relieving mounting fee costs on businesses by promoting competition amongst card companies, the passage of the bill may ultimately shift costs from merchants’ margins to cardholder consumers.[3]

Introduced in July as S.4674 before the Senate and H.R. 8874 before the House, the CCCA intends to push the Federal Reserve for greater regulation of the dominant credit card networks.[4] The bill aims to increase competition in the market by requiring financial institutions to offer transaction processing via networks other than Visa or Mastercard.[5] Of the four dominant credit card networks within the United States, Visa and Mastercard represent a combined 83% of the market, with American Express and Discover making up the residual.[6]

Notably, the bill represents bipartisan support for mounting concerns related to the duopoly of Visa and Mastercard processing transactions.[7] Sponsored by Democratic senator Richard Durbin and Republican senator Roger Marshall in the Senate, and Democratic representative Peter Welch and Republican representative Lance Gooden in the House, the introduction of the CCCA indicates a legislative push to ease the burden faced by consumers and businesses.[8] Historically, this push mirrors that made by Durbin in his amendment to the 2010 Dodd-Frank act, which reduced swipe fees on debit card transactions due concerns over the economic environment of the time.[9] However, action or inaction on the current bill may end up splitting cardholders and merchants alike, given the ultimate effect of the CCCA.[10]

Currently, businesses large and small are required to pay interchange fees on each processed credit transaction.[11] These interchange fees or “swipe fees” typically range between 1-3% and have only continued to increase within recent months.[12] With small businesses running on tighter operating margins than their larger counterparts, these swipe fees have a significant impact on the overall health of the business.[13] As a result, businesses have started shifting the costs onto the consumer.[14] More and more, the prices of goods and services these businesses offer have increased by the credit transaction processing rate, specifically if the consumer pays via credit card instead of cash.[15] Proponents of the bill argue that introducing market competition would benefit businesses’ bottom line by reducing transaction costs.[16] Furthermore, consumers would benefit by not having the costs pushed down to them by businesses with each swipe.

However, opponents of the bill see the regulatory intention of the CCCA as ineffective; they contend that the potential for consumer savings will fail to come to fruition. According to the 2015 brief issued by the Federal Reserve Bank of Richmond, which analyzed the effect of the 2010 Durbin amendment, 21.6% of merchants increased prices on consumers rather than reducing them to pre-swipe fee rate increases.[17] Furthermore, an even greater aspect of opponents’ argument relates to cardholder benefits. With credit card network competition driving swipe fee rates lower, the networks may mitigate against the damage by reducing the pool of reward benefits currently offered to consumers.[18] As with debit card transaction rewards benefits, opponents worry that credit card transaction benefits may decline to nonexistence. Some have even expressed alarm regarding higher interest rates and penalties on cardholders as networks attempt to recoup losses.[19]

While the bill currently sits in committee in both branches of the Legislature, it is still being determined whether Congress will continue to champion the CCCA.[20] Regardless, the Credit Card Competition Act of 2022 presents a significant step in challenging the transaction fee structure in the United States, be it for the benefit or detriment of merchants and consumers.

 

 

 

 

 

[1] Garrett Yarbrough, 18 Best Rewards Credit Cards of November 2022, Bankrate (Nov. 17, 2022), https://www.bankrate.com/finance/credit-cards/rewards/#types

[2] Carissa Rawson, The Credit Card Competition Act of 2022 is Good for Veterans but Bad for Credit Card Rewards, Insider (Oct. 10, 2022, 6:03 PM), https://www.businessinsider.com/personal-finance/credit-card-competition-act-good-veterans-bad-for-rewards-2022-10

[3] Kenley Young, Is Congress Going to Kill Credit Card Rewards?, NerdWallet (Oct. 18, 2022), https://www.nerdwallet.com/article/credit-cards/is-congress-going-to-kill-credit-card-rewards

[4] See S. 4674, 117th Cong. (2022); see also H.R. 8874, 117th Cong. (2022).

[5] Id.

[6] Rawson, supra note 2.

[7] Young, supra note 3.

[8] Supra note 4.

[9] Young, supra note 3.

[10] Bill Hardekopf, This Week in Credit Card News: Rising Rates and Fees on Cards; Will Your Credit Card Rewards Go Away?, Forbes (Oct. 20, 2022, 11:15 AM), https://www.forbes.com/sites/billhardekopf/2022/10/20/this-week-in-credit-card-news-rising-rates-and-fees-on-cards-will-your-credit-card-rewards-go-away/?sh=73abfed66b6c

[11] Young, supra note 3.

[12] Id.

[13] The Journal., The Fight Over Your Credit Card Swipe (Sept. 9, 2022, 4:27 PM), https://www.wsj.com/podcasts/the-journal/the-fight-over-your-credit-card-swipe/c5d1bcf9-d5bd-47b5-b43f-d7712ddeea36

[14] Id.

[15]  Id.

[16] Young, supra note 3.

[17] Becca Trate, The Credit Card Competition Act Does Not Have Consumers in Mind, Center for Data Innovation (Nov. 2, 2022), https://datainnovation.org/2022/11/the-credit-card-competition-act-does-not-have-consumers-in-mind/

[18] Id.

[19] Id.

[20] Supra note 4.

 

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