A Bipartisan Credit Card Bill Reintroduced In Congress to Foster Greater Competition

Credit cards as seen in Orlando, Fla., on July 1, 2021. (John Raoux/AP)

A new credit card bill that targets the monopoly of Visa and Mastercard over the credit card industry has triggered swift reaction from lobbyists.

A bipartisan group of lawmakers, led by Rep. Lance Gooden (R-Tex.), introduced new legislation that would significantly reform the credit card industry and create greater competition for the benefit of consumers.

The congressman reintroduced the Credit Card Competition Act on June 7, which had failed to pass in 2022.

The bill will require large banks and other credit card issuers with over $100 billion in assets to offer at least two network options to process and facilitate transactions that are not owned by Visa or Mastercard.

The proposed legislation has sparked objections from a coalition of banks, credit unions, and lobbyist groups.

Bill Proposes to Break Monopoly Over Credit Card Transactions

Credit card networks process and facilitate transactions between merchants and the financial institutions that issue credit cards. These networks then charge merchants a processing fee for each consumer transaction.

Visa and Mastercard together currently control an estimated 85 percent of the U.S. credit card market, with a virtual “duopoly” over the nation’s credit card transactions.

At the same time, banks like JP Morgan Chase, Citibank, Bank of America, Capital One, Discover, and American Express control roughly two-thirds of outstanding balances as issuers of credit cards.

“This is textbook rent-seeking behavior, anathema to free market principles, and should be staunchly opposed by Republican lawmakers,” wrote several opponents to the law to members of Congress.

“The bill does not promote competition; instead it dramatically expands the role of the federal government to overregulate the market for credit cards.”

Gooden dismissed the concerns by calling the current system far from being a free market with competition.

He denied in a letter to community banks in Texas that the new legislation would institute “backdoor price control” that would create a government-mandated system, reported Fox Business.

“The current system allows a duopoly of payment networks in conjunction with the largest banks to dominate 85 percent of the market, control interchange fees, suppress consumer choice, and crush any competition,” Gooden said.

“It is blatant hypocrisy for the Big Banks to claim this legislation is anti-free market but at the same time criticize the bill for giving consumers and merchants greater choice in payment networks,” he said.

Many of the banks and advocacy groups opposing the bill also claim that millions of credit cards and their chips would have to be reissued and recertified if the law is implemented.

This concern has been rejected by supporters of the legislation, who explained that routing transactions are back-office procedures that do not require any physical changes to the cards.

Merchants Call for Changes in Credit Industry

Senators Dick Durbin (D-Ill.) and Roger Marshall (R-Tex.) led the initial push for the failed Credit Card Competition Act a little less than a year ago.

This time around, the bill has sponsors across the aisles, with senators Peter Welch (D- Vt.), and J.D. Vance (R-Ohio) reintroducing the bill in the Senate, along with the original sponsors, Marshall and Durbin.

Gooden will have the support of Zoe Lofgren (D-Calif.), Jeff Van Drew (R-N.J.), and Tom Tiffany (R-Wisc.) in the House as co-sponsors of the companion bill.

Proponents of the legislation say it would give merchants a greater range of choice by allowing them more options to embrace alternative networks that allow interchange (or “swipe”) fees, which are cheaper than the system currently controlled by Mastercard and Visa.

Those alternative networks include the likes of Star, PULSE, and NYCE, which charge merchants far less for transactions and it is hoped by lawmakers that the savings would then be passed on to consumers.

By forcing banks to offer a second option for processing credit card transactions, merchants could opt for the lower-priced network and, in turn, cut out-of-pocket costs for each transaction.

“Competition will result in lower fees, which have increasingly cut into the razor-thin profit margins of small businesses,” Jeff Brabant, senior manager of federal government relations at the National Federation of Independent Business (NFIB), said in a statement.

“NFIB appreciates … this important legislation, which aims to inject competition by allowing small businesses the freedom to choose between multiple credit card processing networks.”

Local businesses have lobbied in support of this law, but big retailers seem to be the ones who stand most to benefit, say critics.

Over 1,700 retailers, including Target and Walmart, sent a letter to Congress in support of the bill last September.

“Big-box retailers like Walmart, Target, and Kroger will stop at nothing to make a buck and pad their bottom lines—even if it means leaving small businesses and consumers in the dust. There is a reason this ‘Big-Box Bill’ failed the first time around. We believe it will continue to be deeply unpopular among both Republicans and Democrats,” Steven Smith, communications director for the Electronic Payments Coalition, told The Epoch Times.

Proposed Legislation Builds on the Durbin Amendment

This legislation builds on previous efforts to curb transaction fees imposed on merchants, including a provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

That law mandated that merchants have at least two unaffiliated debit card networks when routing transactions thorough an amendment added to the bill by Durbin.

The Durbin Amendment on Banks, Merchants, and Consumers established a fixed fee on debit card-transaction processing, instead of allowing fees derived based on a percentage of the total transaction.

The amendment was reported to have saved merchants $6.5 billion annually in debit fees as a result of transaction caps, according to a study by the University of Pennsylvania’s Carey Law School.

However, the report said there was no evidence that merchants had taken advantage of the law to lower prices for consumers

According to PYMNTS, which used data from the Federal Reserve from 2010 to 2015, showed that 77 percent of merchants did not alter prices after the changes, with only 1.2 percent of them actually reducing their prices.

Under the proposed bill, merchants would still have the right to choose whether to pass the savings from a transaction onto their customers. or stick to the same rate after the item is processed, without having to inform the buyer.

Meanwhile, critics say if retailers start routing transactions over a network that is not large enough to handle the volumes and types of transactions normally processed through the larger existing systems, transactions may be put at risk, wrote PYMNTS.

In the end, any drop in credit card fees would definitely be a windfall for merchants, but maybe not for consumers.

The Epoch Times wrote to Mastercard and Visa for a response.