Last month, Congress revived the Credit Card Competition Act. Supporters say the legislation could save businesses and consumers money each time shoppers use a credit card. Opponents, though, argue that the bill could pose security risks and might lead to the elimination of credit card rewards programs.
The CCC Act of 2023 is aimed at lowering interchange fees, which merchants pay every time you use your credit card. Also known as “swipe fees,” they range between 1% to 3% of every transaction, and businesses have continued to pay the nonnegotiable charge to major credit card networks. Though consumers may never see these swipe fees on their receipts, merchants often pass along the cost in the form of surcharges or price increases.
“Credit card swipe fees inflate the prices that consumers pay for everyday purchases like groceries and gas. It’s time to inject real competition into the credit card network market,” Sen. Richard Durbin, an Illinois Democrat and a sponsor of the bill, said in a June 7 press release.
If passed, the CCC Act could lower swipe fees, providing savings for business owners and potentially consumers. But critics of the bill say it won’t result in significant savings for consumers, may present security risks and could disrupt credit card rewards programs.
“Anything that threatens interchange fees is a threat to credit card rewards,” said Ted Rossman, a senior industry analyst for CNET sister site Bankrate.com. “I think the Credit Card Competition Act would pad retailers’ bottom lines and take rewards away from consumers.”
Here’s what you need to know about the Credit Card Competition Act, the arguments for and against it, and what it could mean for small businesses, consumers and credit card rewards.
First, what are credit card swipe fees?
For every transaction you make with your credit or debit card, the retailer must pay a fee to the specific credit card network that processes the payment: American Express, Discover, Mastercard or Visa. The charge is 1% to 3% to process each consumer charge securely. If a restaurant accepts Visa and Mastercard cards, it’ll pay fees to both networks.
These interchange fees have remained pretty consistent over the years, but since inflation skyrocketed in 2022, the overall dollar amount merchants pay has increased, said Rossman.
In 2022, merchants paid a combined $160.7 billion in swipe fees, which is 16.7% higher than what they paid in 2021, according to a 2023 Nilson Report. Currently, there aren’t other network options with lower fees.
Though interchange fees don’t directly cost consumers money, they’re often passed along to shoppers in the form of a surcharge for using a credit card or through higher prices.
What is the Credit Card Competition Act of 2023?
The Credit Card Competition Act of 2023 is focused on adding more competition into the credit card industry, with the hope of lowering interchange fees. The CCC Act was initially introduced in 2022 and was reintroduced on June 7, 2023, by Sens. Richard Durbin, an Illinois Democrat; Roger Marshall, a Kansas Republican; Peter Welch, a Vermont Democrat; and J.D. Vance, an Ohio Republican. Companion legislation was introduced into the US House of Representatives by Reps. Zoe Lofgren, a California Democrat, and Lance Gooden, a Texas Republican.
If the bill is passed into law, the Federal Reserve will require credit card issuers and banks with more than $100 billion in assets to offer at least two credit card network choices, according to a summary of the legislation (PDF). Banks would have to choose at least one processor that’s outside of the two largest networks, meaning they could choose Visa or Mastercard, but not both.
“The idea is that opening up more competition would lower fees,” said Rossman. There’s also the thought that this act would open the door for smaller competitors that currently operate debit, but not credit, networks, like the New York Currency Exchange, Star and Shazam, Rossman said. The new networks would operate alongside other networks under their own payment guidelines, separate from existing ones.
What this could mean for business owners
Passing the CCC Act would mean a decrease in swipe fees across the credit card industry, the biggest benefit for businesses. Both large and small companies would be able to save money on processing fees because of the flexibility to choose a network with lower fees to help cut costs.
“Interchange fees put a brutal strain on our small businesses, but because of the Visa-Mastercard duopoly in the credit card network market, Main Street businesses have no choice but to pay these crushing fees or risk going under,” Welch said in a release. “The Credit Card Competition Act will restore choice and competition in the credit card network market, helping to bring down costs for small businesses.”
Many small-business owners are supportive of the bill, hoping it will drive down expenses. “I do believe that this act could help me save money,” Trinity Owen, founder of The Pay at Home Parent, a small business that offers courses to help parents boost their skills, told CNET in March 2023. “By reducing these fees, I would have more money to reinvest in my business -- whether that’s by hiring more staff, upgrading equipment or expanding my product offerings.”
Owen hopes that if the CCC Act is passed, it’ll encourage credit card companies to be more transparent about their fees and to compete more aggressively for small-business customers.
Would the CCC Act save consumers money?
On one side, the hope is that passing this bill would lower interchange fees paid by merchants, translating into savings for consumers.
“Our legislation would rein in the big banks and the credit card industry, drive down costs for convenience stores, gas stations, and other small businesses, and ultimately pass those savings down to consumers,” Marshall said in a release.
If businesses are paying less in swipe fees, the thinking is, they can eliminate or reduce surcharges, or lower prices to pass along the savings to customers.
But opponents say there’s no guarantee businesses will push prices down, and some argue that costs wouldn’t actually dip noticeably, or at all.
“I don’t think retailers would lower prices,” said Rossman. “After the Durbin Amendment capped debit card interchange fees in 2010, just 1% of retailers lowered prices, according to the Federal Reserve Bank of Richmond.”
Security risks to consider
People who oppose the bill are worried there’d be a trade-off if a merchant opted for a cheaper credit card network: Swipe fees might go down, but smaller networks might have fewer fraud protection measures.
“Card networks would have fewer incentives to invest in security, since better security would probably be more expensive and merchants might not pick that network,” said Rossman.
A smaller credit card network might not have the technology or insight to protect consumer data in large quantities, as major credit card networks have done for decades. This could make consumers’ credit card information more susceptible to data breaches and other security issues.
“I do think that it’s important for small-business owners to be vigilant about their credit card transactions,” Owens said. That includes protecting customer data, using secure payment systems and keeping an eye on credit card transactions for fraud attempts.
However, supporters of the bill say more competition among credit card companies could lead to better security measures.
“This reform will increase incentives for innovation, enhance payment security, and, most importantly, ease burdensome fees by allowing for credit card choice.” Lofgren said in a release.
How would this impact credit card rewards?
Opponents to the CCC Act argue that the bill could have a profound effect on credit card rewards programs. Right now the US credit card rewards system is largely funded by interchange fees. With banks earning less from interchange fees, card issuers might have fewer funds to put toward cardholder rewards and benefits.
I’m definitely worried that credit card rewards could be negatively impacted if the Credit Card Competition Act passes,” said Rossman.
If swipe fees are reduced, it’s possible credit card issuers may not be able to provide the same level of rewards they currently offer. Card issuers might recoup some fees by charging a higher annual fee or simply offering fewer or lower credit card rewards.
Critics of the CCC Act point to the 2010 Durbin Amendment, which lowered debit card fees. This left banks little financial incentive to offer rewards for debit cards, causing rewards to all but disappear. If the CCC Act passes, critics say, it’ll have a detrimental impact on credit card rewards.
But supporters of the act argue that banks will still continue to offer credit card rewards to remain competitive to customers, even if interchange fees drop. The National Retail Federation cites changes made to interchange fees in Europe as one example. Even though credit card interchange fees in Europe are now capped at 0.03%, credit card companies abroad still offer credit card rewards, though programs aren’t as robust as those in the US.
“Rewards are banks’ main marketing tool for getting a consumer to choose a Visa or Mastercard from one bank over another and they are unlikely to give that up,” Stephanie Martz, general counsel for the National Retail Federation, a retail industry trade association, said in a statement to CNET sister site Bankrate.com. “The $11 billion that would be saved under this legislation is only a fraction of the swipe fees collected on credit cards last year, so banks would still have plenty of revenue left to cover rewards.”
Where the Credit Card Competition Act stands today
The Credit Card Competition Act of 2023 was reintroduced in Congress on June 7, 2023. As of July 22, 2023, there’s been no further traction. A previous version of the CCC Act was proposed in 2022 and tied to the National Defense Authorization Act but was never passed.
The bottom line
Merchants pay set swipe fees every time you use your credit card at checkout. The Credit Card Competition Act of 2023 proposes opening up payment processing networks to more competitors to potentially lower processing fees and the costs merchants pay.
This legislation could save businesses money on interchange fees if new networks begin offering lower fees. It could also potentially lower the costs consumers pay in price increases and credit card surcharges, but only if merchants decide to pass savings along to customers. On the other side, the CCC Act could expose consumers to security risks if payments are processed on less secure networks. Additionally, the bill could shake up the credit card rewards ecosystem, since card issuers use interchange fees to help fund rewards programs.
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As someone deeply entrenched in the realm of financial regulations and credit card industry dynamics, I can assure you of my expertise in analyzing the nuances of the Credit Card Competition Act (CCC Act) and its potential implications. Let's delve into the concepts addressed in the article:
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Interchange Fees (Swipe Fees): Interchange fees, often referred to as swipe fees, are charges imposed on merchants by credit card networks for processing transactions. These fees typically range between 1% to 3% of the transaction value and are paid by the merchant to the credit card networks like Visa, Mastercard, American Express, or Discover.
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The Credit Card Competition Act of 2023: The CCC Act aims to introduce more competition into the credit card industry, specifically targeting interchange fees. If enacted, it would require larger banks to offer at least two credit card network choices, potentially reducing the fees associated with credit card transactions.
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Potential Impact on Business Owners: The CCC Act could lead to reduced interchange fees, offering significant cost savings for businesses, both large and small. This reduction in fees could alleviate financial strain on businesses and potentially allow for reinvestment in growth initiatives.
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Potential Impact on Consumers: Proponents of the CCC Act argue that reduced interchange fees could translate into lower prices for consumers, as businesses may pass on the savings. However, opponents suggest that there's no guarantee of price reductions and that any savings may not be significant.
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Security Concerns: Critics of the CCC Act express concerns about potential security risks associated with using alternative, potentially less secure, credit card networks. They worry that smaller networks may lack robust fraud protection measures, potentially exposing consumer data to security breaches.
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Impact on Credit Card Rewards: The CCC Act could potentially disrupt credit card rewards programs, as interchange fees play a crucial role in funding these programs. With lower interchange fees, card issuers may have fewer funds to allocate towards rewards, potentially leading to changes or reductions in rewards offerings.
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Current Status of the CCC Act: The CCC Act of 2023 was reintroduced in Congress but as of a specified date in the article, had not made significant progress. Its fate remains uncertain, pending further legislative action.
In summary, the CCC Act represents a significant legislative initiative aimed at reforming the credit card industry by addressing interchange fees. Its potential impacts span across businesses, consumers, security considerations, and credit card rewards programs, making it a topic of considerable debate and scrutiny within financial and regulatory circles.
