Would a Proposed Credit Card Law Be as Costly as CUs Claim?

Source: American Banker

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Credit union leaders argue that a proposal to reduce Visa and Mastercard's influence over credit card interchange fees would potentially cut off revenue needed to manage costs and protect transactions.

The Credit Card Competition Act of 2022, introduced by Sens. Dick Durbin, D-Ill., and Sen. Roger Marshall, R-Kan., on July 28, is aimed at lowering interchange by requiring more options to process payments. 

The bill does not directly apply to credit unions or banks with less than $100 billion of assets, but credit union lobby groups say a forced reduction in interchange fees indirectly pressures other community-based financial institutions as well. The criticism is similar to pushback against a debit routing provision in the Dodd-Frank law that was passed after the economic crisis of 2008. That provision, part of what's called the Durbin amendment, required more choices for merchants when routing debit card payments.

The Credit Card Competition Act shares many similarities with the Durbin amendment and as such, could see that same outcome transition from the debit realm to the credit market, said Greg Mesack, senior vice president of government affairs for NAFCU.

Card networks argue that interchange covers costs related to fraud prevention and other factors of handling card payments. Reducing interchange fees does not reduce this burden.

"The impact for credit unions is going to be lower interchange revenue, plain and simple. … In many ways, this is a replay of what we saw with" the Durbin amendment — "you're gonna see lower interchange revenues, but you've still got all of the obligations for fraud protection, security, card issuance and customer service," Mesack said. "This in turn could further shape how credit unions offer low-cost and sometimes free services to members."

Additionally, credit unions with smaller economies of scale that place an increased emphasis on income from consumer credit transactions could have to make up for reduced interchange revenue elsewhere.

"The largest credit card companies in the nation are banks, but [credit unions] are part of that payment processing ecosystem, and an impact in one area impacts all of us. … While we are not-for-profit, we still have expenses to keep the institutions open," said Jason Stverak, deputy chief advocacy officer for federal government affairs at CUNA. "In many instances, that could come down to cutting down hours or additional services."

The new bill continues the longstanding battle between merchants and financial institutions over interchange fees worldwide.