CUSO-News---Payments-Report

close

Categories

More Tags

Subscribe to Email Updates

Popular Stories

MAP Network Exchange Launches in partnership with PULSE
What It Means to Have a World Class NPS
FedNow: Changing the Game for Real-Time Payments
First-Party Fraud - The Not So Friendly Fraud Reality
What Consumers Should Know About the Credit Card Competition Act
Written by Cyndie Martini
on June 27, 2023

US Senators want to inject more competition into the credit card industry through new legislation called the Credit Card Competition Act. The reasoning is that more competition will lower fees paid by merchants (i.e., interchange or swipe fees). Merchants aren't absorbing 100% of these fees since these costs are passed on to the consumer in the form of higher-end product prices or surcharges. By lowering merchant fees, end-user costs should also fall. At least, that is the general thinking behind the legislation.

Additionally, the legislation will force more credit card network choices onto merchants. Instead of mainly VISA and Mastercard, there will be a variety of other processors to choose from.

Some might recall a similar proposal passed in 2010 called the Durbin Amendment. It required that fees be fixed rather than a percentage of the transaction cost. However, the amendment's intent was never met as fees increased. This led to many debit card rewards disappearing.

A 2014 George Mason study found that the Durbin Amendment caused many smaller banks and credit unions to raise fees in other areas to offset the loss in processing fees, crowding out nearly 1 million households. Ultimately, the consumer did not come out as the winner.

How will lowering merchant fees affect consumers with the current proposal? Let's assume that merchants pass the savings on to consumers. This should mean a lower-priced end product. However, it's those same fees that allow merchants to offer their credit card rewards. These rewards come in many flavors, including airline miles, cash back, hotel points, etc. Many consumers select their credit cards based on the rewards programs offered.

If fees are lowered, it will likely lead to fewer reward programs. It could also reduce the value of programs that remain since consumers will probably need to earn more miles and points to get the equivalent value as before. Just as we saw with the Durbin Amendment, there's no guarantee that consumers will see lower costs. Additionally, those fees may, once again, pop up in other banking services.

 

Let Us Know What You Thought about this Post.

Put your Comment Below.

You may also like:

Credit Cards

Credit Card Spending Trends

Average credit card debt per person peaked in Q4 2019 at $3,700, according to data from the Federal Reserve Bank of New ...

Credit Cards

2022 Credit Card Trends

While it is still early in the year, we can already make a few assumptions about what consumers will be doing with their...

Credit Cards

Credit Card Balances are Trending to Pre-pandemic Levels

Credit card balances took a dive in 2020. They are now on the rise and heading back to pre-pandemic levels. Just before ...