Merchants are getting another shot at changing the rules around the "swipe fees" they pay to banks when they accept Visa and Mastercard credit cards.
A group of bipartisan lawmakers led by Sen. Dick Durbin, D-Ill., on Wednesday reintroduced a bill that aims to lower credit-card interchange rates by requiring cards from banks with $100 billion or more of assets to offer merchants a choice of two unaffiliated card networks such as Mastercard or Visa plus another option like NYCE, Star or Shazam.
The Credit Card Competition Act, initially introduced in July 2022, did not advance to a vote. This time around, new supporters have joined the cause, including co-sponsors Sen. J.D. Vance, R-Ohio, a junior member of the Senate Banking Committee; Sen. Peter Welch, D-Vermont, and Sen. Roger Marshall, R-Kansas. A House version of the bill is in the works, backed by Reps. Lance Gooden, R-Texas, Thomas Tiffany, R-Wis., Jefferson Van Drew, R-N.J., and Zoe Lofgren, D-Calif.
Merchant lobbying groups cheered the move, claiming the legislation would end an unfair monopoly Visa and Mastercard enjoy in setting interchange rates. Merchants pay more than 2% of each transaction in fees, amounting to more than $11 billion a year that merchants and consumers absorb, the Merchants Payments Coalition, a Washington, D.C.-based nonprofit representing a broad swath of online and in-store merchants, said in a Wednesday press release.
It's difficult to predict the timing for the second effort to pass the bill. Lawmakers could potentially attach it to other legislation under consideration this summer, and it could also take months to get to a vote.
Although Durbin lacked the votes to pass the bill last time, support from newcomers, including Sen. Vance, could signal a turning point.
Trade associations for banks and credit unions blasted the proposed legislation, claiming that mandating the way credit cards are routed would undermine credit-card security, wipe out credit-card rewards programs that many consumers enjoy and potentially force smaller financial institutions out of business.
"At a time when fraud prevention, cybersecurity and digital innovation are more critical than ever, this legislation would decrease incentives for banks to invest in security in card payment systems," said Aaron Stetter, who joined the Washington, D.C.-based Electronic Payments Coalition as executive director this week after 17 years in a similar position at the Independent Community Bankers of America, which represents about 5,000 small and midsize banks.
Stetter fears that Durbin's latest proposed bill could drive many community banks out of business.
Despite a carve-out to protect them, the number of small banks in the U.S. decreased after Durbin's successful passage of a bill mandating changes in the way debit cards are routed for banks with under $1 billion of assets via an amendment within the 2010 Dodd-Frank Act, Stetter said.
"The newest Durbin bill would make community banks less competitive because they wouldn't be able to affordably offer credit products that are part of their lineups today," Stetter said.
Seven other banking trade groups endorsed the EPC's position, and many issued their own press releases denouncing the proposed legislation.
"We've seen this movie before," the American Bankers Association said in a statement. "The original [2010] Durbin amendment eliminated debit card rewards, raised banking fees and increased fraud costs, all without lowering costs for consumers. At this time of high prices and security risks, America's banks are focused on protecting consumers and we will vigorously oppose this misguided legislation."
"Applying routing restrictions to credit card transactions would expand the Durbin amendment's government-orchestrated transfer of income from consumers to the nation's largest retailers, such as Amazon and Walmart," said Rebeca Romero Rainey, president and CEO of the ICBA.
The National Association of Federally Insured Credit Unions also slammed the proposed legislation.
"It doesn't promote competition and opens the payments system up to risk from untested networks that cut corners at the expense of consumers, small businesses and the credit unions that serve them," said Dan Berger, NAFCU president and CEO, in a statement.
Small merchants also claim to experience the greatest harm from the existing credit card interchange environment.
At a Capitol Hill press conference on Wednesday to reintroduce the bill, Mike Beal, chief financial officer of grocery chain Ball's Food Stores in Kansas City, Kansas, said smaller merchants pay the highest interchange rates in the retail industry because they lack any negotiating power, and these costs steadily increase each year.
"Lawmakers laid the groundwork last year and we look forward to them passing this bipartisan, pro-Main Street legislation this year," said Doug Kantor, general counsel for the National Association of Convenience Stores, who also serves on the MPC's executive committee, in a Wednesday press release.
The National Retail Federation also backs the legislation, claiming bloated swipe fees are one reason consumer prices remain high.
"It's time for big banks and global card networks to compete the same as small businesses do every day," said Stephanie Martz, NRF chief administrative officer and general counsel, in a separate press release on Wednesday.
Concern about the bill upending large issuers' credit card programs could be overblown, suggested Rodman K. Reef, managing principal with Reef Karson Consulting.
The alternative credit card networks that would be added to the mix could include Discover Financial Services and its Pulse network, and American Express, among others.
"The big banks, i.e., major credit card issuers, would seek proposals and choose the second brand based on whomever provides the highest interchange. This means the size of the impact may not be as large or negative as some people might suggest," Reef said.
