With Republicans' recent sweep of the White House, Senate, and House, it is perhaps unsurprising that some lawmakers are using the year's final weeks to push legislation that is unlikely to gain traction in Congress next year. This certainly appears to be the case for soon-to-be-replaced Senate Judiciary Committee Chairman Dick Durbin, who has used his last month in power to promote highly controversial, and very misguided, regulations in his Credit Card Competition Act (CCCA).
Late last month, the senior Illinois senator spearheaded a surprise Senate Judiciary Committee hearing on the credit card industry. During the hearing, Durbin and his senate allies hammered Visa and Mastercard for their market dominance and for allegedly charging merchants excessive fees on credit card transactions. They argue these fees—known as interchange fees or swipe fees—are harmful to merchants and are a hidden contributor to the high prices squeezing consumers. In their mind, the solution to this problem is for Congress to pass the CCCA, legislation first introduced in 2022 and reintroduced last year. That would be a mistake.
The CCCA is designed to increase market competition by requiring large card-issuing banks to provide merchants with at least one credit card network to choose from other than Visa or Mastercard when processing credit card transactions. Supporters hope that such a requirement will reduce credit card interchange fees if more cost-effective networks exist, and that merchants will pass the resulting cost savings on to consumers. The problem with this reasoning is that it is predicated on the false assumption that the credit card market is broken and requires correction.
However, the credit card market is not broken. While Visa and Mastercard indeed have a large presence in the credit card market, they also face plenty of competition. Since many consumers still rely on more than one purchase method when completing transactions, Visa and Mastercard must also compete with cash, check, and debit cards. Not to mention online competition from companies like PayPal and Venmo that allow consumers to bypass traditional payment networks entirely by making payments directly.
Credit card ownership data also reflects healthy market competition. For instance, 52 percent of Americans own a Visa, 43 percent own a MasterCard, 19 percent own a Discover, and 17 percent own an American Express.
It is also worth noting that interchange fees account for just 1.5 to 3.5 percent of each transaction and have remained virtually flat since 2014, despite inflation—until very recently—having been in the double digits.
Lawmakers' criticism of interchange fees distracts from the fact that these fees have an important market function—helping companies cover the cost of processing and authorizing transactions. They also make it financially possible for card companies to provide certain consumer benefits like credit card rewards and fraud prevention. Enacting the CCCA could eliminate these benefits, just as occurred with debit card benefits following the passage of the Durbin Amendment nearly fifteen years ago.
Aptly named after its creator, Dick Durbin (D-IL), the Durbin Amendment imposed new regulations on the debit card market similar to those proposed by the CCCA for the credit card market. These regulations were intended to restore market competition and provide relief to consumers by introducing new limits on debit-card interchange fees and requiring all card issuers with $10 billion or more in assets to offer merchants at least two choices of unaffiliated payment card networks.
Unfortunately, the Amendment produced catastrophic consequences. While succeeding in slightly lowering debit card interchange fees, few merchants passed cost savings on to consumers, with the Reserve Bank of Richmond later finding that just 1.2 percent of merchants lowered interchange fees. Also alarming, the amendment forced covered financial institutions to recoup their losses by raising user fees, such as overdraft fees, and by discontinuing popular services like free checking accounts. Debit card rewards were also effectively eliminated, as the regulation reduced incentives for card issuers to offer rewards to card users.
Despite its negative track record, Senator Durbin and his allies continue to try and impose similar regulations on the credit card market, with last month’s hearing serving as just the latest example. Hopefully, the hearing remains nothing more than political theater and most lawmakers are wise enough to refrain from copying failed legislation from the past. Consumers deserve to know that the credit card benefits they have come to know and love are safe from out-of-touch politicians.
Nate Scherer is a policy analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit us at www.TheAmericanConsumer.Org or follow us on X @ConsumerPal
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