A legislative move to increase competition in the credit card payment network – dominated by Visa Inc. and Mastercard Inc. – is facing severe pushback from not only those two companies but a broad coalition of big banks and financial institutions that cite worries over increased costs and reduced consumer benefits.
The legislation, dubbed the Credit Card Competition Act, seeks to break what has grown largely into a Visa-Mastercard duopoly by requiring large banks to give merchants a choice of at least two unaffiliated credit card networks to process transactions.
Sens. Dick Durbin, D-Ill., and Roger Marshall, R-Kan., reintroduced their much-debated 2022 credit card mandate on May 20, this time as an amendment to the GENIUS Act, a stablecoin regulation bill.
The bipartisan duo says it’s a way to lower costs for merchants – the countless businesses that pay a percentage of each credit card transaction to use the Visa and Mastercard networks. If enacted, proponents say, the legislation mandating that merchants be given more choices would increase competition for networks, thereby potentially lowering fees for the merchants and saving them and consumers $15 billion each year.
Banks and financial institutions argue that requiring the use of other credit card networks could reduce credit card reward programs and might compromise security.
Meanwhile, smaller local banks, which would be exempt, are publicly staying out of the fray. Bank Rhode Island declined to comment. Centreville Bank did not immediately return a request for comment.
Citizens Bank N.A., with $220 billion in assets, would be required to offer a choice of at least two unaffiliated credit card networks. Citizens did not return a message seeking comment.
“The big banks, Wall Street, the credit card industry, are paying a pretty penny to tell a false story to Americans that the Credit Card Competition Act will hurt consumers,” Durbin said in a statement. “But they’re wrong. The legislation will give a fighting chance to restaurants ... support the mom-and-pop shops that make our communities feel whole, and ultimately keep money in the pockets of hardworking Americans.”
Opposition to the bill remains potent in the years after it was originally proposed. A day after Durbin and Marshall reintroduced the bill in May, the American Bankers Association once again pushed back hard, as it did in 2022, calling the proposal “dangerous” and harmful to consumers and banks alike.
Bankers warn that the legislation could primarily benefit large retailers at the expense of everyday credit card users and community financial institutions.
The Durbin-Marshall bill could even open the door to more credit card fraud, according to a Texas A&M University study. Based on 2021 transaction data, researchers estimate the legislation could drive fraud losses up to $20 billion over the next 10 years, more than double current levels.
“This poison pill amendment, which expands on the misguided routing requirements imposed by the Durbin amendment to credit cards issued in the U.S., would harm consumers, small businesses, and banks alike by reducing card choice, increasing fraud risks, reducing rewards, increasing the cost of allocating credit to borrowers, and creating economic challenges for smaller financial institutions,” said a letter to the U.S. Senate signed by the ABA and 52 state associations, including the Rhode Island association.
Representatives from the Rhode Island Bankers Association could not be reached for comment.
Meanwhile, retailers across the country are largely supportive of the mandate, according to Dylan Jeon, senior director of government relations at the National Retail Federation.
In 2023 alone, merchants paid nearly $101 billion in Visa and Mastercard credit card fees, becoming one of the most expensive costs of operating a business, according to the Merchant Payment Coalition.
Jeon says the duopoly has been an issue for retailers for decades. Passing the mandate is a “common sense solution” to the problem, he says.
“The goal is to inject competition into the credit card market – Visa [and] MasterCard control 80% of card use in the country,” Jeon said. “That lets them increase swipe fees to merchants, designed by them to maximize profits from merchants, which ruins flexibility for merchant payment acceptance.”
He says that smaller, independent retailers, which account for approximately 62% of retail store locations in Rhode Island, according to data from Capital One Shopping, will suffer the most should the bill not come to pass.
“Smaller merchants have the least amount of resources and wiggle room when it comes to margins and overheads,” Jeon said. “Main Street businesses stand to gain significant benefits from this. In fact, they’ve been the most vocal in support of the proposal.”
The Credit Card Competition Act would primarily apply to large financial institutions, specifically banks and credit unions with more than $100 billion in assets to enable the cards they issue to be processed over at least two unaffiliated payment networks. That would apply to 26 large banks and one credit union.
However, community banks also will suffer if the Durbin-Marshall bill is enacted, according to the ABA.
Federal Reserve data shows community banks saw a 30% drop in interchange fee revenue since the original Durbin Amendment was enacted in 2011, despite technically being exempt from the fee cap.
That act focused solely on debit cards and capped card swipe fees for big banks. The current mandate is looking to do the same with credit cards.
“The same predatory practices that led to the debit card reform are happening in the credit card space and business owners are feeling the hurt,” Durbin said. “Just like we did with debit cards, we have an opportunity to reform the credit card industry and protect Americans from being exploited by the big banks.”
Meanwhile, the ABA says community banks risk similar losses if the credit card routing mandate passes, threatening funds they rely on for local lending.
“Despite the specious claims that smaller banks are ‘exempted’ from the Durbin-Marshall bill, analysis of the impact of the original Durbin amendment shows that these exemptions are ineffective,” said the bankers associations’ letter to the Senate. “It is abundantly clear that the bill benefits corporate megastores over consumers, small businesses, and community banks,”
A full Senate vote on the GENIUS Act is awaiting scheduling for floor consideration, though it’s unclear if the credit card amendment will remain attached.
