What is the Credit Card Competition Act?

Aug 2, 2023

Lawmakers have introduced a bill intended to reduce credit card processing fees, which merchants pay whenever consumers use a credit card.

The Credit Card Competition Act was reintroduced in June 2023 to address the dominance of Visa and Mastercard in credit card processing with the ultimate goal of lowering credit card processing costs for businesses.

What is the Credit Card Competition Act?

The Act requires large credit card issuers—those with over $100 billion in assets—to allow merchants to choose which network to process credit cards. The catch: the two largest processing networks, Visa and Mastercard, can only be one of the network options. The networks selected can’t be affiliated. If the bill passes, businesses could choose a network with lower fees to save money.

Nearly 2,000 retailers are urging lawmakers to pass the bill, according to CNBC. Supporters of the bill argue that credit card processing costs are hurting consumers and driving prices up. Swipe fees hit $160.7 billion in 2022.

Under the Act, Federal Reserve would be required to create a list of prohibited networks. For instance, the Fed could block networks supported by foreign governments.

Potential Impact

If passed, the bill could hurt consumers by eliminating credit card rewards and fraud protections—and consumers wouldn’t know how their transaction was processed until after the fact. Consumer purchasing decisions may be driven, in part, by credit card rewards programs. If a consumer receives rewards for using their credit card at restaurants, they’re likely to dine out more often.

Credit cards also offer a slew of other benefits like travel and purchase protection, rental car insurance, extended warranty, and more. Credit card issuers would have to dramatically increase annual fees to continue to offer the same benefits.

Allowing for cheaper network selection could confuse consumers who think their transaction is being processed over a network with strong fraud protections. Other networks include New York Currency Exchange, Star, and Shazam. New networks could emerge after the bill.

Currently, the major credit card networks offer fraud liability protection for credit card cardholders, which lets consumers off the hook when their account has been compromised.

What We Learned From Debit Card Regulation

The Durbin Amendment, passed in 2010 to regulate interchange for debit cards, capped interchange at 21 cents per transaction plus an additional fee of up to 0.05% of the transaction amount.

The Act didn’t have much if any effect on retail prices. In fact, 98.6% of merchants did not decrease prices and 21% of merchants actually increased prices, according to research from the Federal Reserve Bank of Richmond.

Smaller banks were at a competitive disadvantage after the Durbin amendment and larger banks made up for the lost revenue by eliminating debit card reward programs and free checking accounts.

The Future of Interchange

So far, the Credit Card Competition Act has only been introduced. It still has to pass the House and Senate.


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