WASHINGTON — The Durbin-Marshall credit card bill could face headwinds in the wake of the Capital One-Discover deal, analysts said.
It's a particularly relevant dynamic to watch ahead of this year's presidential elections, and shortly before President Joe Biden heads to Congress for this year's State of the Union address, where,
The legislation, co-sponsored by Sens. Dick Durbin, D-Ill., and Roger Marshall, R-Kansas, has sparked fierce opposition from the banking industry, and a lobbying campaign that has included television ads that tell consumers and voters that the bill would be a giveaway to large retailers. Still, the legislation has recently garnered more support on Capitol Hill,
The bill would require cards from banks with $100 billion or more of assets to offer merchants the choice of two unaffiliated card networks that aren't both Visa and Mastercard.
A combined Capital One and Discover would account for 19% of U.S. credit card loans, according to some estimates, and could be a viable third-party alternative to Visa and Mastercard.
It could also mean that the deal would be trying to solve the same problem that the Durbin-Marshall legislation is looking to address.
"The bill would ensure that large card-issuing banks offer at least two networks and that one of them isn't either Visa's or Mastercard's," said Ian Katz, managing director at Capital Alpha Partners, in a note. "But the prospect of Capital One moving some of its cards to the Discover network undercuts the bill's intent. At the very least, it complicates the analysis, and when things get complicated, members of Congress tend to punt."
Jaret Seiberg, financial services and housing policy analyst for TD Cowen, said that the deal made hurdles higher for Congress to pass the legislation.
"The deal could create a more competitive Discover, which could mean more competition over credit card interchange and network fees," he said. "To us, this gives undecided lawmakers political cover to oppose the bill until there is clarity about the impact of the deal."
Those ideas are likely to be challenged, however, by both some Democratic-aligned groups and by the bill's proponents.
Doug Kantor, general counsel at the National Association of Convenience Stores and member of the executive committee of the Merchants Payments Coalition, said that the deal shouldn't impact the bill's chances on Capitol Hill.
"It probably doesn't mean anything for legislation, because there's no competition among networks on the merchants' side right now, and this won't change it," he said. "It doesn't really change the landscape in terms of the fact that these major networks, Visa-Mastercard, control the networks and tell the banks how much to charge. So the legislation is every bit as needed as before."
Shahid Naeem, a senior policy analyst at the American Economic Liberties Project — a left-leaning group that criticizes corporate consolidation — said that arguments that the Capital One-Discover deal will increase competition are likely overblown.
"I think that might be wishful thinking," he said. "Folks who are carrying water for the argument that this is going to catapult Discover into a legitimate contender in the credit card payment industry, I think that that really is an argument that only serves to advance the interests of the folks that want this merger to go through."
