The following content is sponsored by the Electronic Payments Coalition.
As Sens. Dick Durbin (D-IL) and Roger Marshall’s (R-KS) proposed Credit Card Competition Act of 2023 gains momentum, it’s time to put a stop to it before its impact affects our communities. The credit routing mandates imposed by this bill could unwittingly undermine competition, harm consumers, and crush the very institutions that form the backbone of local economies — small banks.
Predictably, Sen. Durbin attempts to present his legislation as a proponent of free market principles. However, a closer analysis reveals that this is not the case. It’s extremely concerning that the legislation has garnered support from trusted elected officials, including Republicans who have been swayed by the populist sentiment against banks such as Sen. J.D. Vance (R-OH).
It’s important to note that when consumers opt for specific market alternatives, it does not indicate a lack of competition. Instead, the legislation would ultimately favor major retailers while disadvantaging consumers and small businesses. This outcome clearly contradicts the principle of promoting competition.
The initial intention behind the Durbin Amendment, in 2010, was to address perceived issues of lacking competition within the debit card market. It is worth noting, though, that after this bill passed, consumers did not reap the supposed benefits. For instance, research from the Federal Reserve proved that big-box retailers pocketed the savings. Banks of all sizes made up for lost income by raising fees, eliminating debit card rewards, and reducing free checking. While this was unfortunate for consumers, the Durbin Amendment turned out to be a major gain for mega-retailers such as Walmart, Home Depot, and Target.
Additionally, since the implementation of the Durbin Amendment, small banks and credit unions have suffered from the debit routing mandates. They do not possess highly profitable revenue streams, like large banks, and thus would be forced to increase fees, reduce services, or even merge with other institutions. It is no surprise that community banks and credit unions strongly oppose this proposal.
As an important reminder, the credit card payment world doesn’t need new “fake competitive” measures. I am sure you and many other consumers have a wide variety of credit cards in your wallet, such as Visa, Mastercard, Discover, Amex, or even store-branded cards. Depending on the available rewards, points, and miles, these cards compete for our purchases. Adding another layer into how payment networks operate would only complicate the processes, create delays, and cause confusion for consumers. It also unnecessarily complicates an otherwise seamless, convenient, and secure transaction process.
It is high time we recognize the adverse ramifications of this legislation and seek alternative solutions that foster a truly competitive and consumer-friendly financial landscape.
