The following content is sponsored by the Electronic Payments Coalition.
It’s always a bit of a red flag when Walmart or Target says they are doing something in the name of competition. It’s why the latest bill they are lobbying for is so concerning. The innocuous sounding “Credit Card Competition Act” is anything but competitive. In reality, it’s a bait-and-switch. If passed, the bill will allow the government greater power over the credit card payments system in order to help big box stores squash the credit unions and banks they currently rely on to safely process their customers’ purchases.
The proposed legislation will give new powers to the federal government requiring the Board of Governors of the Federal Reserve system to create new regulations for how consumers’ credit card payments are processed. It will allow retailers to effectively ignore a customer’s preferred credit card network and instead process the payment on a cheaper, less secure network.
Walmart, Target, and Amazon want this bill for a few reasons.
First, they stand to pocket millions. Currently, retailers may pick and choose what credit cards to accept. But if they accept a credit card, they must process the card on that network. They can’t take a brand-name credit card and then covertly process the payment on an off-brand, foreign network to save money. However, this bill will allow them to choose a different network. Retailers will likely ignore a customer’s preference and process it on whatever is cheapest. This leaves the customer unprotected but means the retailers can pay a lower interchange fee, adding more money to their bottom line.
Second, big box retailers would rather not pay for payment security. Right now interchange fees during transactions go to banks and credit unions to help fund anti-fraud programs. It’s why making a purchase with a credit card is so safe—banks and credit unions work 24/7 to make customers whole. Yet if this bill passes, credit unions and banks will lose a substantial source of revenue. They will have to cut back on security programs. The impact will also be seen in credit card rewards programs—there simply won’t be money to fund it.
There may be a role for government to intervene when there are substantial market failures, but this isn’t the case here. Payment security is stronger than ever, and financial institutions are constantly innovating to create faster and safer ways to pay. Walmart and Target simply want to use their connections in government to write new laws to benefit them. This sets a dangerous precedent for the Fed to be able to control markets in favor of one industry over another. It’s also another sad example of big business being able to help create laws that favor them.
This bill will leave credit unions and banks hurting. It will put consumers at greater risk for fraud, while also ending credit card rewards programs. Mega-corporations like Target, Walmart, and Amazon have a significant influence on Capitol Hill, so it’s important your voice opposing this bill is heard.
