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US Senator Richard Durbin has brought back legislation aimed at promoting competition in credit card payment processing. Despite the bipartisan support across both chambers of Congress, lawmakers admit it has "a particularly tough row to hoe".
On Wednesday (June 7), members of Congress re-introduced the Credit Card Competition Act to increase competition in credit card payment processing and, as a result, reduce interchange fees.
The bill orders the Federal Reserve to issue regulations within one year, ensuring that banks in four-party card systems with more than $100bn in assets enable at least two unaffiliated networks to process a credit card transaction.
With this measure, legislators seek to break up the duopoly of Visa and Mastercard and open the door for new market entrants such as current debit-only networks Pulse, Shazam, Star or NYCE.
The legislation is almost identical to the version introduced last year but, this time, it has the backing of a wider group of lawmakers.
As reported by VIXIO, Durbin first introduced the Credit Card Competition Act last July after lawmakers failed to persuade the card giants to drop planned increases in their credit card interchange fees.
After several failed attempts to attach the legislation to must-pass spending bills, the last Congress adjourned without acting on the proposal.
Republican Senator Robert Marshall, one of the co-sponsors of the bill, told the Wall Street Journal at the time that banks and major credit card networks lobbied his office not to sign onto the bill and he was told no other Republican would support the bill.
Durbin has now brought back the bill which is almost identical to the version introduced last year but this time with wider support.
In addition to the Illinois Democrat, the bill has the backing of Democratic Senator Peter Welch from Vermont as well as Republican Senators J.D. Vance from Ohio and Roger Marshall from Kansas.
Along with the senators’ proposal, a companion bill was filed in the House of Representatives by two Democratic and two Republican lawmakers.
Introducing the Credit Card Competition Act at a press conference on Capitol Hill, Vance said during his campaign he consistently heard complaints about high credit card interchange fees, a cost that crushes Ohio small businesses.
“If we wanna have a vibrant rural America, we need to have small businesses that can actually operate, can do their job, can do their businesses without being crushed by this duopoly,” Vance said.
But this was just part of the reason why the senator decided to back the proposal.
A Trump-backed Republican, Vance argued that card giants should not “stick their nose where they don’t belong”, alluding to the recent gun control policy debate that spiralled into how card networks categorise firearm merchants.
The Ohio Republican said he backs the bill because he supports its policy but also because “the American people did not elect Visa or any other major corporation to make social policy”.
“My message to Visa and anybody else — if you want Republicans, the party traditionally of the free market, to let you do your job, then don’t stick your nose into the social policy of this country. Let elected representatives make those decisions.”
In addition to the lawmakers, 270 trade associations and close to 2,000 companies signed letters this week calling on Congress to pass the Credit Card Competition Act. Large corporations such as Walmart, Amazon, ALDI and BP Gas are among the signatories.
Despite the wide-ranging support, Vance told a local newspaper that the bill “has a particularly tough row to hoe, not just with Republicans”.
Banks and credit unions launched a fierce campaign against the bill as early as Tuesday, the day before the bill was officially announced.
Rob Nichols, CEO and president of the American Bankers Association (ABA), called it a “regressive bill that takes from consumers, community financial institutions and small businesses and gives to the most profitable global retailers and biggest grocery chains”.
“It’s hard to understand why Sen. Vance is working with Sens. Durbin, Marshall and Welch to promote the profits of big box department stores and dominant online retailers in their plan to take away Ohioans’ credit card rewards,” Nichols said.
National credit union associations blasted the bill for favouring big-box retailers only, to the detriment of consumers who will have to pay higher fees for basic banking services if the legislation passes.
Although it is widely accepted that large corporations could save millions on even a small reduction in the interchange, it is generally understood that smaller businesses are the ones most susceptible to paying higher fees due to their lack of bargaining power.
For example, it was reported in Canada, before a recent cut in the interchange fee cap from 1.4 percent to 0.95 percent, small businesses were paying the full 1.4 percent. Larger businesses, however, were believed to have negotiated a far smaller fee of 0.85 percent.
Additionally, the rule would apply to large banks only, excluding smaller and community banks from the obligation to enable dual routing. According to the latest Federal Reserve figures, this concerns 30 large banks only.
US credit card interchange fees are estimated to range between 1.5 and 4 percent, but merchant payment consultancy CMSPI estimates it costs on average 1.8 percent of the transaction value, which it says is far higher than in any other developed country.
