Last year, the Credit Card Competition Act of 2022, a bipartisan initiative, was introduced but stalled in the Senate. Its authors plan to reintroduce it in 2023. This article explores the potential impacts of the Act on businesses, weighing both advantages and disadvantages.
Understanding the Credit Card Competition Act
The Act targets the dominance of four major card brands in the U.S. payments market: Visa, Mastercard, American Express, and Discover. It proposes to allow merchants to choose more cost-effective networks for processing transactions, potentially reducing fees.
Key Provisions of the Act
The Federal Reserve would mandate larger banks to offer at least two networks for transaction processing, excluding the two with the largest market share. This initiative mirrors the Durbin Amendment’s approach to debit card transactions, although without capping interchange fees.
Arguments in Favor
Proponents argue that increased competition could lead to lower processing fees for merchants, translating into cost savings for consumers. They criticize the high fees charged by dominant card networks and banks.
Counterarguments
Opponents, including the Electronic Payments Coalition (EPC), warn of potential harm to consumers, small businesses, and financial institutions. They reference the Durbin Amendment’s unintended consequences, which disproportionately impacted smaller merchants and low-income consumers.
Unintended Consequences of the Durbin Amendment
- Increased fees for checking accounts and reduced offerings of free checking accounts.
- Debit card rewards programs were significantly reduced.
- Small ticket merchants faced higher processing fees.
Potential Risks of the Credit Card Competition Act
Similar to the Durbin Amendment, the Credit Card Competition Act might lead to several unintended outcomes:
- Lack of Adequate Security: New networks might not have robust security measures, increasing fraud risks.
- Reduced Rewards: Banks might cut back on rewards programs funded by interchange fees.
- Increased Fees and Credit Standards: Banks could raise fees and lending standards, impacting low-income consumers and small businesses.
- Operational Costs for Small Businesses: Businesses might face expenses in upgrading systems for new network compatibility.
Consumer and Small Business Concerns
Surveys indicate skepticism among consumers, who doubt they’ll benefit from the Act. Small business owners, too, fear losing rewards and facing higher operational costs.
Bankcard International Group’s Commitment
Bankcard International Group remains dedicated to offering fair and affordable merchant account rates, regardless of legislative changes. We continue to support our merchants in navigating the evolving landscape of payment processing.
