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We at AwardWallet are big fans of credit card points and frequent flyer miles, as you likely know. New legislation being discussed in Congress in the U.S. could drastically alter your ability to earn rewards from your everyday purchases or massive welcome bonuses. The Credit Card Competition Act has a great name — supposedly stimulating competition related to credit cards, and we love competition when it leads to new offerings that benefit consumers.
While we previously thought it stood no chance of being approved, a Senator has threatened to hold up an important government funding package — thus risking a government shutdown — if this bill doesn't get a vote.
However, if history is any judge, the results of this legislation could be disastrous for anyone who enjoys earning rewards from credit cards and using those for travel. It also could be disastrous for low-income and minority communities. Just look at what happened with similar legislation related to debit cards.
What is the Credit Card Competition Act? And why do we think it would be bad? Let's take a look at the details and the effects of similar legislation. We'll also tell you what you can do if you're interested in voicing your opinion about this pending legislation.
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What Is the Credit Card Competition Act?
The Credit Card Competition Act was originally introduced in the U.S. Senate on July 28, 2022. It was introduced by Richard Durbin (a Democrat from Illinois) and Roger Marshall (a Republican from Kansas). The bill showed no signs of passing committee or coming up for a vote, so the Senators attempted to attach it to a defense spending bill. However, it didn't move forward last year.
Now, the legislation has been reintroduced, again attached to a defense spending bill. What does this bill have to do with defense spending? Well, nothing. Instead, it's an effort to help the bill pass without needing to stand on its own merits. Meanwhile, a similar bill was introduced in the House of Representatives by Lance Gooden (R-TX) and Zoe Lofgren (D-CA).
So what is the Credit Card Competition Act?
As the name suggests, this law is meant to inject competition into the credit card industry by requiring banks to offer at least one alternate payment processing network on every purchase. That alternative would need to be something other than Visa or Mastercard. The law would work by amending the Electronic Fund Transfer Act, directing the Federal Reserve to obligate credit card issuers to implement these new rules.
The stated goal of the legislation
The idea is that new networks would offer cheaper processing fees and that merchants would choose these options, saving money. As the idea goes, merchants would theoretically pass these savings along to customers by reducing prices. In fact, these swipe fees are why you may see stores charging an extra fee (such as 50¢ or 3% of the purchase price) if you pay by credit card instead of cash.
But have these fees really increased? Not so much. Over the past four years, the average fees paid by merchants increased just 0.005%. The National Retail Federation — in favor of the Credit Card Competition Act — presents the data in a different manner to seem more appalling, however. Their statement merely outlines how much retailers paid in 2022 ($160.7 billion in total swipe fees) compared to 2001 ($20 billion) without providing any context to these numbers — such as how many more people, retailers, or transactions are involved in arriving at these numbers.
Are military members / veterans disadvantaged here?
You may wonder what credit card fees have to do with Congress' oversight of military spending or why the Credit Card Competition Act is being attached to the National Defense Authorization Act (NDAA). Marshall and Durbin, the bill's chief proponents, stated it's because those in the military are suffering from higher prices due to higher swipe fees at supermarkets on military bases.
Jeff Tassey, board chairman of the Electronic Payments Coalition (EPC), doesn't see the connection. In a statement, he said attaching this legislation to the NDAA is proof it wouldn't get support when considered independently.
“This Trojan horse — trying to slip the Walmart-Target sponsored Credit Card Competition Act into the NDAA — proves that this bill cannot stand on its own merits. Using our nation’s veterans as pawns is a cynical political ploy that should be resoundingly rejected by Congressional lawmakers. All American consumers, including our nation’s veterans, do not pay interchange fees. … The truth is that the Durbin-Marshall legislation is a multibillion-dollar corporate welfare scheme for mega-retailers like Walmart, Target, and Kroger that will lead to less secure, less innovative, and higher-risk transactions for American consumers.”
Understanding interchange / swipe fees
The goal of the Credit Card Competition Act is to set limits on interchange fees paid by merchants each time you make a purchase with a credit card. Let's look at what those fees do.
The value of rewards programs is roughly $60 billion per year, according to a study from Forbes. However, those programs are subsidized by interchange fees (also known as swipe fees). And a report from the American Bankers Association says that merchants gain more than what they pay in fees, thanks to increased security during payment processing, higher purchase values, and the fact people are prone to spend more on credit cards (as supported by reports from the Federal Reserve).
This same report also dispelled the claim that rewards programs benefit the rich while being subsidized by low-income households, as rewards and spending patterns don't support this idea — a crucial idea underpinning the Credit Card Competition Act. People are more likely to make bigger purchases when they have credit cards that provide rewards on the purchase, as data shows an average transaction value of $112 here, compared to the average cash transaction value of $22. People spending more money at stores helps merchants, but this spending behavior may not continue with changes to rewards and credit card incentives.
Pushing for low-cost alternatives could also lead to less secure routing options, which presents risks for credit card fraud. The American Bankers Association said this legislation would rob consumers — including military families — of rewards, enrich giant retailers, and compromise data security.
Comparing to Past Legislation on Debit Cards
The Credit Card Competition Act is new, so assessing its real-life impacts isn't certain. However, there are parallels from the past that should give us pause.
Durbin Amendment of 2010
The so-called “Durbin Amendment” of 2010 (introduced by the same Sen. Durbin of Illinois) was attached to the Dodd-Frank Wall Street Reform and Consumer Protection Act. Its goal was similar to the Credit Card Competition Act: Limit swipe fees (down from 50¢ to 24¢ per transaction, on average) and add routing mandates for debit card transactions. So what happened with this similar legislation? Nothing good for consumers.
The idea was that limiting swipe fees would lead to savings for merchants, which they, in turn, would pass along to consumers. If this worked, prices should've gone down. However, this didn't happen, and merchants pocketed an additional $90 billion in revenue. And instead of reducing prices, thanks to savings on swipe fees from debit cards, over 75% of retailers made no change. Actually, more than 20% of retailers actually raised prices in the wake of the Durbin Amendment.
The University of Pennsylvania reported another unintended consequence: Monthly fees for checking accounts increased by over 70% on average to make up for lost revenue from swipe fees.
And what happened to debit card rewards when these swipe fees were reduced? They've all but vanished. It's why you hardly see sign-up bonuses or lucrative rewards on debit cards these days.
Effects on low-income and minority populations
The Durbin Amendment also harmed communities of color disproportionately. Banks eliminated free checking programs and imposed additional fees/account minimums. Low-income communities and communities of color relied on these programs more than their wealthier counterparts, and nearly 1 million additional Americans became unbanked as a fallout from the Durbin Amendment. The majority of these people came from low-income and minority populations.
Offers of fee-free checking accounts fell by 50% at banks subject to the Durbin Amendment (those with assets of $10 billion or more). Meanwhile, banks not subject to the legislation increased these offerings. However, many of these banks have limited reach and don't provide enough access to cover everyone who lost banking access after the new regulations.
A study from the George Mason University Law School was blunt in its assessment:
“Most large retailers have seen significant cost reductions as a result of the Durbin Amendment, yet to date there is no evidence that those cost savings have been passed-through to consumers. Interchange fees have increased for merchants that make small-ticket transactions, as networks have eliminated discounts that they previously received, and smaller merchants have not seen any reduction in their merchant discount rates. Thus, while consumers have seen large and immediate increases in the cost of bank accounts, to date there is no evidence of reduced prices at the pump or checkout. We estimate that as a result of the Durbin Amendment, there will be a transfer of $1 billion to $3 billion annually from low-income households to large retailers and their shareholders, which have been the primary beneficiaries of the Durbin Amendment to date.”
A transfer of $1–$3 billion annually from low-income households to retailers and shareholders, due to increased fees for consumers and increased savings for banks and merchants, is startling. And how would the Credit Card Competition Act fare in this area?
Estimates on negative effects going forward
A 2021 estimate found that 5–8 million African American consumers and 5–7 million Latinx consumers would likely lose access to credit cards, as banks would reject applicants at higher rates than present. These consumers are already 5-8% more likely to have their credit card applications rejected than their white peers.
What about the wealth transfer from the bottom to the top? The same estimates say that $40–$50 billion would move from working-class families to large-scale merchants and their investors. With further-reduced access to credit cards and bank products, people will be forced to turn to pricier credit offerings, such as payday loans.
And how would these changes affect small businesses — those who should supposedly see the cost savings?
Big retailers will have no problem investing money to replace their credit card terminals to accept lower-fee alternatives. Smaller businesses will have difficulty acquiring this costly equipment.
After the passage of the Durbin Amendment, there's no evidence that independent businesses changed to new networks for debit card processing. Thus, these small businesses didn't save money the way larger merchants did. And there's no evidence things would be different with credit cards this time around. There's also a massive cost for banks to replace all credit cards they issue, which would be necessary so cards could now run on more than one network.
There's also concern that airfare would be more expensive. Airlines make significant sums of money each year from co-branded credit card partnerships. If funding for those dries up, will American Airlines, Delta Air Lines, and United Airlines (for example) simply forgo that revenue? Or will they increase the price you see when buying a ticket to make up some of the difference?
Safety concerns
Detractors of the Credit Card Competition Act say that new, untested, cheaper processing networks are likely to expose credit card and consumer details to foreign information networks and hackers. Their argument is that security will be less robust in order to save money on processing fees.
Loss of rewards and protections
Considering that credit card issuers fund their rewards and cardmember perks — not just miles and lounge access but also things like travel insurance and extended warranty protection — from interchange fees. So where would funding for these benefits come from? With the reduction in revenue from swipe fees, history shows that rewards, cardholder perks, and built-in protections for credit cards would likely disappear. Or, you may need to pay much higher annual fees — as we often see for rewards cards offered in other parts of the world.
What You Can Do
If you want to voice your opinion about the Credit Card Competition Act, you can take a few steps right now, right where you are.
First, you can sign the petition at Hands Off My Rewards — a project of the Electronic Payments Coalition. You also can share this easy short link with others so they can sign the petition: https://bit.ly/3RrlNBV.
Additionally, you should contact your representative and your senators. You can find your elected officials here.
You can call or send an email letting them know you are against this legislation and want them to vote against the Credit Card Competition Act. Remember that your elected officials likely have more than one office. Leaving messages at both their regional offices at home and their offices in D.C. can help make a bolder statement.
Bottom Line
If the similarities to debit card regulations in 2010 tell us anything, the Credit Card Competition Act would have numerous negative effects on consumers. The legislation would likely gut credit card rewards as well as cause further economic hardships for those already struggling to get credit. Meanwhile, it would provide a windfall of benefits for large retailers, leading to a further transfer of wealth from the bottom to the top.
After the Durbin Amendment of 2010, debit card rewards went away, people lost access to banking services, and the rich got richer while the poor got poorer. We would likely see the same effects with the Credit Card Competition Act, and it would likely slash award programs as we know them. If you share our views, please reach out to your elected officials to make your voice heard and sign the petition available here.
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This article is the most thorough listing of all the things wrong with “swipe fee reform” / Credit Card Completion Act that I have seen yet.
EVERYONE with rewards earning credit cards should write to their Representatives and Senators.
There is a form at Hands Off My Rewards dot come where you put in your address and add your comments to their letter template, and the site will automatically submit the letter to your specific elected officials for your address.
Thank you, Stephen
I wish you had a simpler system for people to contact their congresspeople
I’ve been solicited previously to voice my opposition to bills, and it required minimal work on my part
Paul – there’s a form at handsoffmyrewards.com that you can fill out and it will automatically email your elected officials.