A proposal to reduce swipe fees paid by merchants on credit card transactions is making a comeback in congress but faces major opposition from big banks.
The Credit Card Competition Act offers the potential to lower fees banks charge merchants for processing credit card transactions. Typically, businesses pay two to three percent on each credit card transaction. However, premium cards can charge as much as 4 percent.
The bill would require credit card-issuing banks and networks, such as Visa and MasterCard, to offer a choice of at least two networks over which an electronic credit transaction may be processed. Proponents of the measure say the competition will lower fees.
Most of the swipe fee goes to the credit card’s issuing bank, called an interchange fee. However, the merchant’s bank and the credit card network also get a share. In addition, the payment processing company sometimes gets a piece of the action.
Currently Visa and MasterCard control over 80 percent of the credit card market in the U. S.
To cover the cost of swipe fees, some merchants pass that cost directly to you. However, others cover it with increased prices. Still others absorb the cost thereby hurting their bottom line.
No matter how merchants deal with swipe fees, it impacts consumer prices.
Impact on You
Right now, swipe fees cost the average American household $1,000 a year, according to the National Retail Federation (NRF), the nation’s largest merchant trade association.
Last year, U. S. retailers paid a record $160.70 billion in processing fees according to the Nilson Report, to accept $10.589 trillion in payments from credit, debit and prepaid cards. The Nilson Report is a 52-year old research firm covering the card payments industry.
“Merchants paid much more overall in 2022 because credit card spending made up a larger share and cost more to accept,” said David Robertson, publisher of the Nilson Report.
Second Time Around
A bipartisan group of senators tried to get the act included in the National Defense Authorization Act in 2022. That effort failed.
However, lead senate sponsors Richard Durbin (D-IL) and Roger Marshall (R-KS) are making a renewed push for the bill.
They reintroduced the measure in June. As a result, their efforts are picking up support.
Senator J. D. Vance (D-OH) has joined Durbin and Marshall as a bill sponsor.
Several House members have also joined the effort to pass CCCA. They include Lance Gooden (R-TX), Zoe Lofgren (D-CA) Tom Tiffany (R-WI) and Jeff Van Drew (R-NJ).
In addition, support from outside congress is also building.
Small Business Rises Up
Merchants have been pushing back on swipe fees recently.
A year ago, Walmart and Target joined over 1,600 smaller retailers backing the CCCA.
More recently, financial company Block sued Visa and MasterCard in July. That suit argued that those credit card networks conspired to inflate interchange fees. That resulted in higher consumer prices, according to the brief.
Also in July, the NRF sponsored a fly-in for merchants to lobby congress in support of the CCCA.
Dane Ferguson, owner of Ferguson Books & More in Grand Forks, N.D., told the NRF why he went to Washington.
“I attended the fly-in because skyrocketing costs to our small business due to increased credit card swipe fees is single-handedly preventing our business from expanding,” he said. “Knowing there is pending legislation, I wanted to make sure lawmakers heard our voice.”
“Credit card swipe fees are my third highest expense behind payroll and rent,” added Jennifer Luna. She is CEO of The Kindship Companies, a group of five Tacoma, WA gift shops.. “I pay almost double my personal salary in credit card swipe fees.”
Banks Push Back
Banks have pushed back against the CCCA. They argue that the reduced fees will cut their incomes. As a result, they say, supporting rewards programs could be more difficult.
The same banks also argue that retailers are not obligated to pass savings on fees to consumers. To back their claims, opponents for the CCCA reference an amendment to the Dodd-Frank of 2010 passed in the wake of the 2008 financial crisis.
That amendment, sponsored by Durbin, reduced debit card fees. However, opponents contend the reduced fees killed debit card rewards programs.
Skeptics argue that rewards are too important a marketing tool for banks and networks to eliminate them.
Besides, says John Ulzheimer, contributor to FICO and Equifax, card companies and banks have other resources they can tap.
“Card issuers are very clever,” John Ulzheimer told CNET. “I doubt rewards will be affected because of the importance placed by consumers on their rewards programs. There are plenty of other places [credit card issuers can] recoup a reduction in fee income.”
Ulzheimer suggests banks and credit card networks could increase other fees. Those include charges on ATM transactions, overdrafts, over-limit purchases and more.
Where Things Stand Now
Big banks and credit card networks may not have to worry.
Every year around 10,000 bills are introduced in congress. Only a couple of hundred usually pass into law. A recent exception is the 117th congress, which ran from January 2022 to January 2023. It saw 9,883 bills introduced with only 85 becoming law.
Many bills are assigned to committees and are never heard from again. However, Marshall says he has been assured the CCCR will get a vote in the senate.
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Max K. Erkiletian began writing for newspapers while still in high school. He went on to become an award-winning journalist and co-founder of the print magazine Free Bird. He has written for a wide range of regional and national publications as well as many on-line publications. That has afforded him the opportunity to interview a variety of prominent figures from former Chairman of the Federal Reserve Bank Paul Volker to Blues musicians Muddy Waters and B. B. King. Max lives in Springfield, MO with his wife Karen and their cat – Pudge. He spends as much time as possible with his kids, grandchildren, and great-grandchildren.
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