Washington targets credit card processing fees
Washington targets credit card processing fees
The Credit Card Competition Act: A Game-Changer for Consumers and Merchants
A bipartisan bill aimed at increasing competition in the Visa- and Mastercard-dominated credit card processing network is gaining momentum in Washington as companies take sides on whether it will ultimately help cut consumer and merchant costs.
The bill, known as the Credit Card Competition Act, seeks to increase industry competition by requiring credit card-issuing banks with assets over $100 billion to add a second credit card network to their platforms. This bill builds on the debit card competition reforms enacted by Congress in 2010.
Visa and Mastercard currently control more than 80% of the U.S. credit card network market, accounting for over 576 million cards. Each time one of their cards is swiped, about 2% to 3% of the transaction amount is deducted from the merchant’s received amount. Visa and Mastercard retain a portion of this cut as a network fee, which is ultimately passed on to consumers in the form of higher prices for goods and services.
“American consumers are worried about inflation and rising prices, and credit card swipe fees are part of the problem,” said Senator Dick Durbin (D-IL), who introduced the bill last month. Alongside its companion legislation in the House, the Credit Card Competition Act presents an opportunity to address this concern.
However, opposition to the bill comes from various groups, including the Electronic Payments Coalition (EPC), which consists of credit unions, community banks, and institutions. The EPC argues that the bill would result in harmful credit card routing mandates.
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“This legislation would allow big-box retailers like Walmart and Target to process credit card transactions based solely on what is cheapest for them without regard to the value that consumers derive from rewards and many other benefits,” stated the EPC. They further argue that the Credit Card Competition Act would be a “multibillion-dollar corporate welfare scheme,” ultimately harming consumers, small businesses, and community banks.
The EPC draws attention to the 2010 debit card reforms, which they claim proved to be a disaster for consumers and small financial institutions. They warn that expanding routing mandates to credit cards would undermine fraud security and hurt various stakeholders.
On the other side of the argument, the Merchants Payments Coalition (MPC), a trade group that represents a wide range of merchants, supports the bill. In a letter sent to Congress, the MPC expressed their belief that the legislation would help fix “a broken market that has allowed Wall Street megabanks and global card networks to block competition and unfairly profit at the expense of Main Street merchants and American families for far too long.”
The Credit Card Competition Act, sponsored in the Senate by Sen. Dick Durbin, with co-sponsors Roger Marshall (R-KS), Peter Welch (D-VT), and J.D. Vance (R-OH), aims to level the playing field and create fair competition in the credit card processing industry. In the House, the bill is sponsored by Lance Gooden (R-TX), Tom Tiffany (R-WI), Jefferson Van Drew (R-NJ), and Zoe Lofgren (D-CA).
This proposed legislation has created a heated debate between proponents and opponents, with each side presenting valid arguments and concerns. As the discussion continues, it is essential to carefully consider the potential impact on consumers, merchants, and the overall economy. The Credit Card Competition Act could be a game-changer, ensuring greater competition and potentially leading to reduced costs for all parties involved in credit card transactions.
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