Senator Dick Durbin (D-IL) apparently doesn’t understand that “no” means “no.” Otherwise, he wouldn’t reintroduce his unpopular and foolish Credit Card Competition Act.
After being told “no” by other Members of Congress, as well as the American public for years, Durbin has pulled the plan off the scrap heap and is giving it another go.
If passed, the legislation would largely kill credit card rewards, increase the cost of banking, make it harder for small businesses to have access to capital, and force many local banks and credit unions out of business, all so the big retailers that fund Durbin’s campaigns can make a few extra bucks.
The Credit Card Competition Act would cap interchange fees through convoluted government routing mandates. Interchange is the tiny percentage credit card companies charge for using their networks and assuming the risks associated with credit card fraud and non-payment.
The proposal is widely opposed in Nevada, where I am running for Congress. The Nevada Credit Union League, Nevada Bankers Association, and the CEO of the Latin Chamber of Commerce have all condemned the bill. As have leading state lawmakers from both sides of the aisle.
And Silver State leaders aren’t alone in our dislike for the scheme.
Every major airline, the American Consumer Institute, H&R Block, and leading pro-taxpayer groups, including Americans for Tax Reform, Americans for Prosperity, and the National Taxpayers Union, all oppose the Credit Card Competition Act.
There’s good reason that Republicans and Democrats alike hate the plan to apply socialist-style price controls to credit cards.
In this time of high inflation and financial insecurity, the Credit Card Competition Act would increase costs and fees for credit card holders. It would also harm small community banks and neighborhood credit unions, which would lose billions of dollars and be forced to increase interest rates to stay afloat – making life even tougher for families and small businesses trying to find affordable loans.
Clearly, this proposal is a regressive tax that harms the poorest Americans and the smallest businesses the most.
So who wins? Big Retail, of course.
The largest retailers and biggest companies in the United States – businesses like Walmart, Target, Lowe’s, McDonald’s, Kroger, and Costco – will receive 99% of the benefits.
These retailers pinkie-promise that if the Credit Card Competition Act passes, they’ll pass along the savings to consumers. But an overwhelming majority of Americans don’t trust the merchants to lower prices, according to a recent Morning Consult poll – and for good reason.
When Congress passed a similar policy for debit cards in 2010, no retailers reduced their prices to reflect the lower transaction costs associated with debit cards. Instead, they greedily pocketed the extra money.
To make matters worse, the limits on debit card fees caused banks and credit unions to suffer significant financial losses, forcing them to eliminate most free checking accounts, increase fees, and charge more for replacing lost cards.
Not only did capping interchange fees on debit cards fail to result in any savings for consumers, but low-income banking customers ended up paying an extra $160 per year in additional charges.
If Durbin succeeds in his current efforts to cap interchange fees, credit card companies and financial institutions will have to make up the loss by eliminating benefits and increasing prices. Credit cards without annual fees will no longer be available. Rewards such as airline miles, hotel points, and cash back bonuses will be available only to the wealthy few willing to pay hundreds or thousands of dollars in annual fees.
That’s bad news for the estimated 250 million Americans who use a credit card that earns benefits – and particularly bad news for the 89% of credit card users who say they value their rewards programs.
I’ve relied on airline miles earned using credit cards to help farmers in Zambia stand up against World Health Organization proposals aimed at regulating what crops they were allowed to grow. Credit card rewards have also taken me to Armenia to support an LGBT organization fighting discrimination, to India to defend freedom of the press, and to Vietnam to promote internet freedom.
For many Americans, credit card rewards are a way to take their family on a vacation they couldn’t otherwise afford. For others, gas rewards and cash back bonuses help put a few extra dollars back in their pockets as they struggle to pay for the rising cost of everyday life.
All of those benefits will be gone if Durbin is successful.
Sen. Durbin’s Credit Card Competition Act won’t bring down prices for customers, it’ll snatch away the credit card perks that lower-income folks and small businesses rely on, it’ll increase the cost of banking for everyone in America, and it’ll kill off local financial institutions across the country.
Not that Sen. Durbin cares. He has raked in hundreds of thousands of dollars in campaign contributions from some of America’s biggest retailers, including Walmart and Home Depot.
Sen. Durbin seems more concerned about making his donors happy than he is about protecting low-income Americans and struggling small businesses. Hopefully, other members of Congress will see that it’s not worth harming so many people just so big retailers can make a few more dollars.
Drew Johnson is an economist and government watchdog. He is also a candidate for Congress in Nevada’s third congressional district.