Sens. Dick Durbin (D-Ill.)t, Peter Welch (D-Vt.), Roger Marshall (R-Kan.), and J.D. Vance (R-Ohio) have re-introduced the bipartisan Credit Card Competition Act of 2023 (CCCA). Companion legislation was introduced in the House by Reps. by Lance Gooden (R-Texas) and Zoe Lofgren (D-Calif.).
Building on debit card reforms enacted by Congress in 2010, the bill would instruct the Federal Reserve to issue regulations to ensure that:
- Banks in four-party card systems with over $100 billion of assets offer a choice of at least two networks over which an electronic credit transaction may be processed
- At least one of the networks must be outside of the top two-largest networks, which means that, at this time, a combination of Visa and Mastercard would not comply
Merchants claim this measure will lower their fees, while promising to pass the savings on to consumers. If the past is an indicator of the future, this is unlikely to occur. Research has highlighted that the consumer benefit did not materialize, and merchants and acquirers pocketed the transfer of revenue mandated by prior regulation.
Last September, SRM wrote a detailed blog about this bill highlighting the impacts and implications. Now, we intend to summarize the implications and what impacted stakeholders can do to shelve this catastrophic legislation.
The CCCA would jeopardize the economic viability of credit cards for all issuers, including those with less than $100 billion of assets. Credit cards will be unprofitable, and issuers will likely restrict access to credit. While certain consumers may lose access, others will see material fee increases in other banking products as issuers look to recoup lost revenue. While the bill’s sponsors claim this will not impact smaller institutions, similar claims were made about the original Durbin amendment. Yet, such exempt issuers still saw a significant decline in interchange revenue.
The routing volatility and economic uncertainty could cause all but the largest issuers to exit the business. Should this happen, mega-issuers would see rapid growth and an even greater concentration in market share. It is difficult to imagine this legislation benefitting anyone.
This bill would also introduce significant technical, operational, and financial challenges for issuers that must be addressed. While Sen. Durbin claims that credit interchange disproportionately impacts mom-and-pop merchants, the bill is unlikely to benefit them. Small merchants generally bundle pricing structures with their merchant acquirers, letting the acquirers benefit from any increased competition tied to merchant routing.
If signed into law, the Fed will have a year to prescribe updates to the Electronic Fund Transfer Act that would take effect at least 180 days from the release of the final version.
The Bottom Line
Though overall legislative support for the bill has doubled in recent months, there is still widespread opposition in both the Senate and House, as well as from many facets of the banking community that have sent a letter to every legislator. Sen. Durbin is astute at passing legislation using all means possible such as adding it to another bill as a rider that can get passed through reconciliation. Issuers must be vigilant by working with their associations and contacting elected officials to oppose this bill aggressively.
Keith Ash, Managing Director, Payment Strategy at SRM, has decades of experience in the banking industry, advising leading financial institutions on their strategic payments initiatives. Further inquiries may be made by emailing Keith at kash@srmcorp.com.
