The Credit Card Competition Act threatens to harm consumers

Politicians can't keep their hands out of our wallets.  As if taxing our income, our property, and all our purchases weren't enough, in recent months, they've shown an interest in regulating our credit cards.

Last year, Senator Richard Durbin (D-Ill.) and Senator Roger Marshall (R-Kan.) put forth the Credit Card Competition Act (CCCA) in an attempt to lower interchange fees paid by merchants charged by payment networks, such as MasterCard, Visa, Discover, or American Express, whenever credit cards are used for transactions.  The bill was reintroduced in June. 

This legislation is just an attempt to repackage an already failed policy that would harm consumers by leading to a reduction in credit card rewards programs and make it harder for low-income consumers to obtain consumer credit. 

In 2010, the Durbin Amendment — named after Senator Durbin himself — was added to the Dodd-Frank Act and set out to cap interchange fees on debit card payments and increase payment network choice.  But a 2019 study at the University of Pennsylvania Carey Law School showed that, following the passage of the Durbin Amendment, banks tried to make up for their losses by increasing costs in disparate areas — namely, by offering fewer and fewer free checking accounts.  On the whole, however, merchants failed to pass on the savings they realized to consumers.  And Ted Rossman, a senior industry analyst at Bankrate, pointed out that following the Durbin Amendment, there was a ubiquitous movement to eliminate debit card rewards programs.

Now there is a bipartisan effort to reduce interchange fees on credit card payments.  The CCCA would require banks to offer cards through at least one payment network other than Visa or MasterCard.

This movement is based on the false narrative that Visa and MasterCard hold a duopoly in the payment network industry.  Even if that were true, it would not inherently be an issue.  What's wrong with two major players providing the best possible service?  It's simply a reality of competitive markets that some businesses come out on top.  But that's really beside the point, because no such duopoly exists in the payment network industry. 

In 2020, 49% of American adults had a Visa credit card, 38% had a MasterCard, 18% had a Discover Card, and 15% had an American Express card.  There are clearly more than two major players in this space, and the competition present has made credit cards better for consumers

Competition has led banks to offer various credit card rewards programs, such as travel or cash-back rewards, to attract customers and increase revenues.  Ultimately, more transactions mean more revenue, and more revenue reduces the risk of lending to low-income consumers, making it easier for them to access credit.  But the CCCA, like the Durbin Amendment before it, threatens this beneficial process by inserting itself into the payment process, putting credit reward programs and consumer lending to low-income customers at risk.

There is already adequate competition in the payment network industry, and the Durbin Amendment to the Dodd-Frank Act gives us a cautionary tale about attempts to micromanage payments in the economy.  The government should keep its hands out of our wallets and ditch its effort to manage whom banks partner with for their credit card offerings. 

Benjamin Ayanian is a graduate of the University of Minnesota, where he studied philosophy, business law, and political science.  He has also been published in Fox News Opinion, Newsweek, and the Wall Street Journal.  Follow him on Twitter @BenjaminAyanian.


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