The Credit Card Competition Act could bring changes to your credit cards -- but not necessarily in the way you think.
Taking aim at the credit card processing fees charged to merchants, the Credit Card Competition Act was reintroduced to the Senate on June 7, after it failed to pass in Congress last year. Although this bill has yet to be voted on, if passed, it would inject competition into the credit card processing network market, seeking to lower fees merchants pay every time you use your credit card.
Proponents of the bill suggest this could help businesses lower prices, a positive benefit for consumers. But opponents argue that merchants won’t lower prices -- and they say credit card issuers may halt or lower rewards programs to make up for lost profit.
But credit expert John Ulzheimer, a contributor to FICO and Equifax and former president of consumer education at Credit.com, isn’t worried about rewards disappearing. “Card issuers are very clever,” Ulzheimer said. “I doubt rewards will be affected because of the importance placed by consumers on their rewards programs. There are plenty of other places [credit card issuers can] recoup a reduction in fee income.”
What exactly is the Credit Card Competition Act and how would it impact you? We’ll break down everything you need to know about the CCC Act, the arguments on both sides and whether passing this bill could really change credit card rewards programs.
What is the Credit Card Competition Act?
The CCC Act is a bipartisan bill put forth by Sens. Richard Durbin, an Illinois Democrat; Roger Marshall, a Kansas Republican; Peter Welch, a Vermont Democrat; and J.D. Vance, an Ohio Republican; and by Reps. Lance Gooden, a Texas Republican; Zoe Lofgren, a California Democrat; Thomas Tiffany, a Wisconsin Republican; and Jefferson Van Drew, a New Jersey Republican. It seeks to limit merchant fees by increasing competition between credit card networks, and will target swipe fees over 2%.
To facilitate your credit card payments, merchants pay a fee to the credit card network, called a credit card transaction fee or a swipe fee. This fee averages 1.5% to 3.5%.
Most of the swipe fee goes to the credit card’s issuing bank, called an interchange fee. But the merchant’s bank, the credit card network (the two largest of which are Visa and Mastercard, whose combined market share tops 80%) and sometimes a payment processing company also get a cut.
These fees cost merchants $126.35 billion in 2022 to facilitate $5.76 trillion in credit card transactions, up 20.2% from 2021. Many have little choice but to pay if they want to accept credit card payments -- which is pretty much necessary for doing business in today’s world.
Right now, Visa and Mastercard have a duopoly, controlling over 80% of the credit card network market with 576 million credit cards, according to Durbin, in a summary of the CCC Act.
This means that most consumer credit cards operate on the Visa or Mastercard networks, even if they’re issued by different banks. If a merchant wants to be able to accept any Visa credit card, it must accept all Visa credit cards from all banks and issuers, regardless of how high the fees are. The same goes for Mastercard.
The CCC Act would mandate that the largest credit card issuing financial institutions -- those with assets over $100 billion -- enable at least two processing networks to be used on their cards; one could be either Visa or Mastercard, but the other must be a different network. The merchant would then get to choose which of the two networks to use when processing a transaction, giving them some control over the fees they pay.
This would create competition among Visa, Mastercard and other credit card networks, hopefully getting the networking giants to lower the fees they charge merchants to facilitate credit card payments. If merchants pay lower fees, they could lower prices for goods and services, which would benefit customers.
“Credit card swipe fees inflate the prices that consumers pay for everyday purchases like groceries and gas,” said Durbin in a June 7 press release. “Bringing real competition to credit card networks will help reduce swipe fees and hold down costs for Main Street merchants and their customers.”
Would this bill save consumers money?
While proponents of the bill argue this legislation would lead to fewer fees for merchants and potentially lower prices for consumers, opponents disagree, citing a similar amendment -- the Durbin Amendment. This amendment was ratified to the Dodd-Frank Act of 2010 and limited interchange fees on debit cards. The Durbin Amendment had long-standing repercussions for the debit card industry.
An early 2013 study conducted by Robert J. Shapiro of Georgetown University found that for every $1 saved by merchants following the Durbin Amendment, consumers saved 69 cents. But newer research paints a different picture.
A 2015 study conducted by the Federal Reserve Bank of Richmond found that only 1.2% of merchants lowered prices after the Durbin Amendment. And a 2019 study conducted by University of Pennsylvania Carey Law School found that consumers didn’t experience savings as a result of merchants paying lower debit card swipe fees.
The 2019 study noted that the amendment resulted in a decrease in bank revenue by $6.5 billion annually, which led banks to increase the cost of their products -- an act that hurt consumers. For example, free checking accounts decreased by 40%, according to this study.
While that doesn’t mean history will necessarily repeat itself if the Credit Card Competition Act passes, opponents of the bill point to these studies as evidence that the CCC Act won’t help consumers.
“I think the Credit Card Competition Act would pad retailers’ bottom lines and take rewards away from consumers,” said Ted Rossman, a senior industry expert at Bankrate, a CNET sister site.
However, Stephanie Martz, chief administrative officer and general counsel of the National Retail Federation which supports the CCCA, told CNET that merchants are likely to try passing savings on to consumers one way or another.
Speaking on behalf of retailers, Martz said merchants pass along savings to customers whenever they can find them. Whether the savings come from lower rent or less money going to suppliers, the customer is likely to benefit.
And those benefits don’t always come in the form of a lower cost of goods. Fewer fees could also mean businesses are able to hire more staff or provide better benefits to their workers. “I think all economic signs point to the fact that, one way or another, retailers are going to pass any kind of reduction in fees along in the form of benefits. Wages, additional hires or, of course, [lower] consumer prices,” Martz said.
Could your credit card rewards disappear?
Another result of the Durbin Amendment was the diminishing of rewards on most debit cards, as debit card swipe fees partially funded these rewards. Opponents of the bill argue that if this bill passes, credit card rewards might suffer the same fate since interchange fees largely fund credit card reward programs.
“While the Credit Card Competition Act wouldn’t explicitly cap credit card interchange fees, by incentivizing low-cost competition, it would probably drive card issuers’ margins down, which would cut into rewards,” said Rossman.
But Ulzheimer disagrees, stating that while it’s possible that the CCC Act could change credit card reward programs, it’s not likely. “I don’t think this will touch rewards,” he said. “There are other ways to recoup a loss in swipe fee income that doesn’t touch rewards.”
Credit card rewards are one of the biggest incentives issuers offer to get consumers to adopt their credit products. If rewards decrease or disappear, people might be less likely to apply for cards -- a move that could significantly impact the credit card industry. Fewer cardholders could mean less credit card debt, which would result in a loss of income for credit card providers.
But Ulzheimer thinks credit card issuers will find other ways to recover the loss of revenue that swipe fees currently provide, allowing issuers to continue to fund rewards programs. “You don’t have to recoup it from any particular consumer or group of consumers,” he added. Issuers might increase “ATM fees, overdraft fees, foreign transaction fees, over-limit fees, annual fees, etc.”
While it’s possible that banks will raise consumer-facing fees or interest rates to make up for lost profits, Martz doesn’t think this will necessarily happen.
The issuing banks are “all going to have to continue to compete with each other for customers. So they’re going to have to decide on the continuum of getting this customer or raising interest rates or making it harder to get a card,” Martz said.
Martz also believes it’s unlikely that credit card rewards will disappear and notes that any increases in fees or interest rates will need to remain attractive to draw in customers.
The bottom line
The issue of interchange fees, profits from merchants and credit card issuers, and rewards and fees for consumers is a complex one. Proponents of the CCC Act say it aims to increase competition among credit card networks and issuing banks, lowering fees for merchants and allowing them to pass the savings on to consumers. Opponents argue consumers may not see any savings, and consumer-facing credit cards might -- though it’s unlikely -- face reduced rewards and potentially higher fees.
Credit cards are one of the best ways to build credit, said Ulzheimer, so long as you pay in full each month and pick one of the many fee-free cards on the market.
Since a solid credit history is necessary for many financial opportunities -- everything from renting an apartment to getting a car loan -- under the current credit system, credit cards are likely to remain a necessary part of most consumers’ financial lives even if they were to become more expensive and less rewarding.
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