The Argument Against the Credit Card Competition Act - Small Business Payments Alliance

The Credit Card Competition Act (CCCA): What’s at Stake

On June 7, 2023, several U.S. Senators and members of Congress introduced the so-called “Credit Card Competition Act” (CCCA) in both the House and the Senate. The proposed legislation is a direct threat to our electronic payments and rewards system and, if enacted, would have a major negative impact on our local businesses, entrepreneurs, and tradespeople who use credit cards. It would circumvent the competitive free market with a government “routing mandate” that dictates which processing networks banks can accept, without regard to security or quality.

Contrary to its name, the Credit Card Competition Act would not benefit competition in a meaningful way, because mega retailers with huge volumes of transactions are the only ones that would benefit from this proposal. The bill would allow them to avoid being controlled by network rules, letting them negotiate their way out of complying. Meanwhile, small businesses are unlikely to see any savings. With this drastic shift in the credit card market, rewards programs would be decimated and there would be an increased risk of reduced protections for local businesses, entrepreneurs, tradespeople, and consumers alike.

In 2010, Congress passed a similar provision that enforced price controls on debit card processing fees. However, studies have shown that this legislation only increased big retailer revenue, with little to no cost savings passed down to consumers. Instead, small businesses and consumers alike saw reduced availability of free checking, higher monthly fees, higher minimum account balances, and the disappearance of debit card rewards programs.

Security and Fraud Protection

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. The CCCA would reduce the revenue that banks have used to cover fraud losses and fund robust security features.

Additionally, 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 to prevent data breaches. Yet, the two networks being targeted by this legislation invested over $17B over the past 5 years into maintaining safe and reliable networks.

Further, every credit card would need to be reissued to comply with this proposed rule, causing mass disruption to consumers and local businesses in addition to the significant fraud risks.

Rewards

Credit card issuers spend an estimated $100 billion on rewards and partner payments, and one in seven Americans has a rewards credit card. The CCCA would trigger cutbacks to these rewards programs, hurting small business owners, entrepreneurs, and tradespeople who use rewards to fund their business operations and support their employees. Credit card benefit programs (including cash back and travel rewards) would be dramatically reduced or eliminated altogether if the CCCA goes through. Additionally, locally owned small businesses and American consumers would also lose out on rewards benefits from certain networks if their payments are routed on an alternate network.

Loan Access

The CCCA would reduce the revenue that community banks and credit unions use to extend loan access to underserved communities. In response, they would have to charge more and raise credit standards on loans for locally owned small businesses, entrepreneurs, and tradespeople in their communities.

Choice and Transparency

The CCCA would remove choice and payment transparency from small business owners, entrepreneurs, and tradespeople using credit cards. They would no longer have control over which network processes their financial transactions, adding a lack of transparency to their payments. This also means that their payments may not be processed on their preferred networks that provide rewards programs (such as cash-back and travel miles).

Credit Access

Banks and credit unions of all sizes may need to raise fees, interest rates, and credit standards, making credit cards less accessible to the American consumers, local businesses, entrepreneurs, and tradespeople who need them to succeed.

Dispute Resolution

Local small business owners rely on established networks for their dispute monitoring programs which have a robust framework in place. Networks with lower pricing, in addition to potentially lower fraud defense, may not invest in fair and balanced chargebacks and dispute resolution mechanisms and may simply charge small businesses for any dispute or alleged fraud.

Frequently asked questions

Won’t small businesses see the same benefits from a routing mandate as big businesses?

No. Mega retailers are powerful enough that they can go directly to payment processing networks and negotiate deals with them for lower rates. For every credit card transaction happening in their stores, they would be able to choose whichever network would give them the special low rate. Locally owned, small businesses do not have the same choice, and they cannot go directly to payment networks and negotiate deals.

Did small businesses gain anything from the CCCA predecessor, the 2010 Durbin Amendment on debit cards?

Small businesses lost after the Durbin Amendment’s passage. They lacked the ability to negotiate lower rates with payment networks, so they got nothing from the routing mandates. Further, many small businesses saw their interchange fees increase after banks started to charge the full fee cap for every single transaction, instead of a small percentage proportional to the transaction.

Aren’t small community banks and credit unions exempt from the legislation?

Yes, but the exemption would not work. When similar debit card legislation passed in 2010, it created an industry wide impact. A 2017 study by the Federal Reserve found that the negative consequences of routing mandates were felt by both regulated and exempt financial institutions.