Credit Card Competition Act #1
The phrase “revolving credit line” usually conjures up images of balding bankers, meticulously reviewing detailed loan applications, while bright-eyed prospective borrowers wait on the edge of their seats. Today,
revolving credit lines for consumers take the form of colorful plastic cards that fit neatly in your wallet, and provide access to rewards, concert tickets, and much more. These colorful plastic cards—credit cards — are merely the end of an intricate network that combines consumer loans, account reconciliation, purchase protection, and security that is available to you, worldwide, on a 24-7 basis.
What’s more, it’s not just one network. It is actually many networks that not only reliably serve millions of people each day, but consist of many thousands of Americans who help make this system work. Largely built by the private sector and enhanced on a yearly basis with billions in capital investment, credit cards and the systems they represent have allowed We the American People the ability to maximize our lives in ways that our ancestors never dreamed.
Of course, none of this is free. Customers must pay their credit card bills, while merchants also pay “interchange” to use the card networks themselves. Interchange rates vary, but they do help to both pay
for the cost of operating the networks (which includes people, technology, and taxes), and the constant upgrades required to keep them secure and operable. Think of interchange as an investment in the peace of mind knowing that your credit card payments are convenient, safe, and secure.
That is why FreedomWorks is so concerned about the Credit Card Competition Act (S. 1838), legislation introduced by Sens. Roger Marshall (R-KS) and Richard Durbin (D-IL). This bill would enact routing
mandates that forces all credit card issuing banks to include at least two unaffiliated payment networks on every credit card— and they can’t both be Visa and Mastercard. This would be akin to requiring that
Starbucks put Dunkin’ Donuts’ coffee on their menu or that Chevy put the brand new Ford Mustang in their dealerships, right next to the new Camaro. This legislation would allow mega-stores–like Walmart
and Target–to process credit card transactions based solely on what is cheapest for them without regard to the value that consumers derive from rewards and many other benefits.
Thus, the Credit Card Competition Act is nonsensical on its face, but the potential impact is far more than simple political stupidity. History has shown that whenever government intervenes in a market, there are
disproportionate and unexpected impacts. The one that worries us the most is the potential reduction or complete loss of rewards programs that have become a key part of the credit card universe.
The precedent for this comes from the Dodd–Frank Wall Street Reform and Consumer Protection Act, which became law in 2010. Dodd-Frank included a provision, called the Durbin Amendment, that enacted
similar routing mandates on debit cards and capped interchange for debit card transaction. The result was an abrupt end to the burgeoning universe of debit card rewards. Despite this, merchants—large and small
—have continued to sing the same song of being “clobbered” by interchange despite the lack of any real evidence that these fees are impacting the ability of small, medium, or large businesses to thrive.
However, all of these businesses will certainly feel a negative impact if access to credit and rewards programs are restricted for credit cards the same way they have been for debit cards. Think back to the
last time you used your airline points to travel: in all likelihood during that trip, you used your credit card to purchase food from a local eatery or visited a franchise such as a McDonalds or a Marriott. Those simple, common acts put more money into the coffers of those merchants, thanks to the credit card-based rewards. Even including the cost of interchange, the revenues and profits net the merchant far more than
they would have earned had you not received credit card rewards in the first place.
This is just one example of how shortsighted Sens. Marshall and Durbin are in attempting to advance the Credit Card Competition Act. It is the hope of FreedomWorks that this legislation is stopped before it has a chance to end the freedom and opportunity that has resulted from the proliferation of credit cards and