The Durbin-Marshall credit card bill was introduced last year in Congress as the “Credit Card Competition Act” (CCCA), and the bill’s sponsors are pushing for a vote this fall. The proposed legislation is a direct threat to the electronic payments and rewards system and would have a major negative impact on small business owners who use credit cards and rewards to support their businesses. Despite its name, the legislation would circumvent the competitive market with a new government routing mandate that would dictate processing networks, without regard to security or quality. A recent study revealed that the bill would “disproportionately benefit the top five businesses in the U.S.” while “costing small businesses over $1 billion in lost rewards as well as a decline in access to credit.”
Small Business Payments Alliance Gives Voice to Small Business Owners
The Small Business Payments Alliance is a coalition of independent businesses, entrepreneurs, and tradespeople who understand the value of the electronic payments system for business and consumers. The SBPA was formed in the wake of proposed changes to that system – changes that threaten to reduce credit card payment security, access and benefits.
- Small business owners rely on credit card payments and rewards programs to lower operating costs, re-invest in their businesses and employees, manage cash flow, and give customers more choice, security, and convenience in how they pay.
- The overwhelming majority of small business owners oppose Durbin-Marshall-type government mandates:
- Most (83%) say government regulation should stay the same or decrease.
- Two-thirds (64%) believe Durbin-Marshall would benefit large retailers more than small businesses.
- Two-thirds (64%) say that forced adoption of new/updated processing networks will place an unfair cost burden on business owners, with more than half (57%) expecting to see lower profits if new network processing changes are required.
Durbin-Marshall Would Disrupt Small Business
The modern, safe, and secure electronic payments ecosystem is critical to the success of small businesses across the country. Durbin-Marshall would fundamentally upend that system, disrupting small businesses that depend on credit card payments and rewards programs.
- The bill would “disproportionately benefit the top five businesses in the U.S.” and “almost all of those savings will accrue to retailers with $500 million or more in annual sales, with little going to small businesses.” (Finance Department Chair, University of Miami’s Herbert Business School)
- The bill would cost small businesses “over $1 billion in lost rewards as well as a decline in access to credit.” (Finance Department Chair, University of Miami’s Herbert Business School)
- In 2021, economists reported that extending the Durbin Rule to credit cards could cause annual revenue losses of $5 to $10 billion for community banks and local credit unions. (Morning Consult, 2021)
- Small business owners earn 220% more on an average credit card transaction compared to cash.
- When a merchant begins accepting card payments, they experience a 10% – 15% increase in average transaction size.
- The cost of processing cash payments can add 10% to overhead costs for a small business.
Durbin-Marshall Would Eliminate Credit Card Rewards
Durbin-Marshall would trigger cutbacks to credit card rewards programs, hurting small business owners who depend on rewards to fund their business operations and support their employees. The legislation would also hurt consumers who use cash back and travel rewards.
- In 2022, card issuers spent an estimated $100 billion on cash back, rewards, and other credit card benefit programs. (Javelin Strategy & Research, 2023)
- Credit card interchange reductions that significantly reduced rewards programs in the European Union, Australia and Canada are a warning of what’s to come in the U.S. should CCCA become law. (International Center for Law & Economics)
Durbin-Marshall Would Threaten Credit Card Security
Credit and debit card fraud is on the rise in the U.S., where fraud losses are predicted to reach nearly $20 billion annually by 2031. In many cases, these costs are covered by the banks, so their customers don’t have to cover them. Durbin-Marshall would reduce the revenue that banks have used to cover fraud losses and fund robust security features.
- Forcing banks to open up credit cards to alternative payment processing networks puts financial data at risk because not all payment processing networks have the same security provisions. In fact, many skimp on benefits such as fraud protection and security features that prevent data breaches. (Bankrate, 2023)
Conclusion
The Durbin-Marshall credit card bill would not benefit competition in a meaningful way, as only corporate mega stores with enormous volumes of transactions would benefit from this proposal. With this drastic shift in the credit card market, rewards programs would be decimated and there would be an increased risk of fraud for small businesses and consumers alike. Small businesses shouldn’t be forced to pay for a Washington giveaway to corporate mega stores.