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The column by Florida Bankers Association CEO Alex Sanchez, “Dick Durbin is coming for your credit card rewards,” demonstrates the problem when banking trade associations cater to the interests of their biggest banks instead of providing accurate information to all.
Let’s set the record straight: the Credit Card Competition Act, the bipartisan bill I introduced with Republican Senator Roger Marshall of Kansas, only applies to banks with more than $100 billion in assets. That’s just a handful of mega-banks. If you accept Sanchez’s premise that the bill imposes significant burdens on the banks to which it applies, then you have to concede that the bill would give smaller banks that are not subject to those burdens a competitive advantage against the big banks who are.
Sanchez says he represents community and regional banks. He should be honest with them. Just because giant banks like Wells Fargo, Citi, JPMorgan Chase, and Bank of America are represented on the Florida Bankers Association’s Board of Directors doesn’t mean the association should mislead its small bank members.
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Sanchez makes numerous other claims that require correction. For example, he says that the Credit Card Competition Act would not increase competition in the credit card industry. That is false. Our bill would shake up the Visa-Mastercard duopoly, which controls more than 80% of the U.S. credit card market and charges high transaction fees of about 2%-3% whenever a card is swiped. In 2021 alone, Visa, Mastercard and their card-issuing banks charged merchants a staggering $77 billion in credit card fees. Consumers bear these fees in the form of higher prices on everything from gas to groceries – and because the fees are charged as a percentage of the transaction, they increase with inflation.
Market competition typically helps keep fees in check, but Visa and Mastercard have structured the credit card industry to avoid competitive market pressures on their swipe fees. Visa and Mastercard set the fee rates for all cards in their network of banks, so the banks that issue the cards don’t have to compete with each other on the rates that merchants pay them. And when a consumer presents any Visa or Mastercard credit card to a merchant, a merchant has to accept it no matter how high the fees or else the merchant will lose access to all the cards issued by all the banks in the network.
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The Credit Card Competition Act would require the largest 30 or so banks in the country to enable two networks to be used on their credit cards, and at least one must be a network other than the Visa-Mastercard duopoly. In other words, a giant bank would choose a second network to put on their cards, and then merchants would get to choose which of those networks to use to process transactions. This competition and choice between networks would incentivize better service and lower fees. Federal law already requires debit cards to carry two networks, boosting competition and innovation among debit networks and helping hold down debit fees.
Sanchez claims that our bill will make credit card rewards disappear. Nonsense. Banks, not card networks, offer rewards programs, and they do so to attract cardholders to use their banks and not other banks. Increasing competition among networks will not diminish banks’ competition for cardholders. And again, our bill only applies to the largest handful of banks.
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Sanchez also claims that our bill would cause an increase in credit card fraud. But that would only happen if a big bank chose to add a second network that had shoddy security. As we’ve already seen with debit cards, banks don’t have any incentive to do that. Further, our bill would give merchants incentive to route the transaction over the network with better security, because card fraud losses are typically charged back to merchants. More competition will incentivize better security, not worse.
I understand why Visa, Mastercard and the mega-banks oppose our bill, because it takes these giants head-on. But the competition that this bill would create would significantly benefit consumers, small businesses, small networks, and, yes, small banks. It’s time for banking trade associations to level with their smaller members about this reality.
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