The following content is sponsored by the Electronic Payments Coalition.
One of the first lessons of politics is to never take a bill’s name at face value. Case in point, Sen. Dick Durbin’s (D-IL) new bill is called the “Credit Card Competition Act,” but a closer look reveals it really destroys free-market competition in the payments space. The bill contains new credit card routing mandates that will grant the federal government greater control over payments. The bill directs the Federal Reserve to create new routing mandates that will force companies to hand over their technology for free, destroying what is currently a fair and free marketplace.
Not only is this bill anti-competitive, it also will put American consumers at risk of being hacked. Criminals around the world work overtime to hack into your private data and payments information. Every year, consumers spend $9.1 trillion using credit and debit cards. Meanwhile, the rate—and cost—of criminal activity is on the rise. Over the past five years, fraud losses have more than doubled. In 2022 alone, $12 billion was lost to fraud in the United States.
To help fight against this, financial institutions have invested millions of dollars in state-of-the-art-technology. This includes AI software to help predict fraud and new chip technology in the cards themselves. All of these technological investments take resources to produce. One of the ways financial institutions support these investments is through interchange fees.
Interchange fees are collected whenever a customer uses a credit card at a retailer. It is usually about two percentage points of a purchase. The fees are used for a variety of costs and help support financial institutions like banks and credit unions. These banks and credit unions use this revenue to help cover fraud loss, invest in new technology, and operate their businesses.
The new bill proposed by Sen. Durbin will force these financial institutions to add another payment network to their credit cards. Retailers will then choose to run payments over these cheap, and often foreign, networks, avoiding having to pay interchange fees. Banks and credit unions help to cover a consumer’s costs when fraud occurs. Any reduction in interchange fees would directly affect bank and credit union investment in fraud management systems and processes that are dedicated to reducing fraud risk in the system—forcing institutions to increase costs to cover these necessary expenses.
Big-box stores are pushing for this bill heavily. The likes of Walmart and Target stand to gain hundreds of millions of dollars if they can cut their processing costs by using cheap, overseas networks. Unfortunately, they will do this at your expense. Cheaper networks offer little or no credit card rewards and have not invested in 21st century fraud prevention. But big-box stores know they won’t be on the hook if fraud occurs. Your bank or credit union has guaranteed payment to the retailer, and it’s these financial institutions that will be hurt when fraud skyrockets further.
This legislation puts the profits of big-box retailers—like Walmart and Target—ahead of your security. Make sure elected officials in Washington know that if this bill moves forward, your likelihood of being hacked will go up significantly. Now is not the time to put your wallet at risk.
