The harm the Credit Card Competition Act could do
A piece of Nevada’s economy is under threat by an old idea with a new name: the Credit Card Competition Act (CCCA). Fortunately, this bill did not get far after it was introduced in Congress last summer, and the sponsors were unable to tack it onto an end-of-the-year omnibus bill. Yet it is likely just a matter of time before they reintroduce it.
In 2010, Congress passed an amendment to the Dodd-Frank Act that added routing mandates and a cap on interchange fees (that merchants pay to process electronic transactions) to debit cards. The idea is that because interchange fees cost retailers about 2 percent per transaction plus 30 cents, restricting interchange fee revenue and lowering debit card processing costs could enable retailers to pass the savings down to consumers.
Unsurprisingly, consumers did not see the promised savings. Instead, the giant retailers that lobbied for the policy, including Target and Walmart, saw about $100 billion in extra profits. A study by the Richmond Federal Reserve found that almost all retailers either raised prices or kept them the same after the amendment. In the newer bill mentioned above, consumers are not even mentioned.
Some proponents of the proposal assert that interchange fees cost retailers that otherwise would be glad to accept cash.. But retailers know that cash transactions often actually cost them more than 2 percent plus interchange fees.
According to a study by the IHL Group, the cost of cash transactions for retailers ranges from 4.7 percent to 15.3 percent because of cash theft, the time and labor cost of transferring cash to bank accounts, and increased work hours to pay people to manage cash, to name a few. So instead of pushing for more cash transactions, retailers are trying to limit their costs from interchange fees with the false argument that it will benefit consumers.
Right after the Dodd-Frank debit card amendment passed, banks, particularly the small community institutions that serve marginalized communities, lost billions and had to make up the losses. Debit rewards programs vanished almost entirely, and banks passed losses down to consumers by eliminating free checking accounts and adding new and/or higher account fees.
Big box stores now want to extend a routing mandate to the credit card market and gut the current interchange system, the revenues of which fund consumer protection tools and systems, travel insurance, and the credit rewards programs millions of Americans use to help fund their vacations and trips home (to the tune of about $50 billion, all total). Should the bill be re-proposed and pass, banks, particularly community banks and credit unions, will see massive revenue losses and will have to cut back on many of the perks and protections we have come to know and love.
As renowned travel and credit card rewards expert Brian Kelly, founder of The Points Guy, said of the bill, “Consumers would lose out on rewards, purchase protections and fraud protections, while retailers would add to their bottom line.”
Proponents also will point to a small bank exemption in the original Durbin Amendment as a fix, and say that this proposal might even benefit small banks. But a 2017 study by the Federal Reserve found that the negative consequences of routing mandates were felt by both regulated and exempt financial institutions. “From an economic perspective, [the findings] illustrate that competition among firms may generate an industrywide response even for a policy that only targets a specific set of firms.”
Nevada cannot afford a policy that will decimate the very travel rewards programs that help provide free or subsidized travel to destinations like Las Vegas, Lake Mead and Lake Tahoe. If Americans suddenly see their rewards and travel benefits disappear, Nevada will see a reduction in the number of visitors we get, hurting hotels, casinos, entertainment venues and small businesses that depend on visitor spending. Ultimately, ordinary Nevadans would have to foot the bill for these losses in the form of higher prices, while retail giants get a windfall of cash.
We also can look at the mistakes made by other countries to know that CCCA will hurt consumers. In Australia, their Reserve Bank added Durbin Amendment-style regulations to credit providers that limited interchange fee revenue. Now those consumers are paying hundreds of dollars in account fees each year for the same rewards cards that used to be free, or nearly so. And according to a CRA International analysis, rewards card fees in Australia rose by as much as 77 percent and the value of rewards points fell nearly 25 percent after the policy was implemented.
Why should consumers generally and Nevadans in particular have to lose valuable rewards programs and shoulder more expensive costs for the benefit of the country’s big box stores? Congress needs to reject policies like the Credit Card Competition Act that would hurt consumers and Nevada families.
Lauren Brooks heads a public affairs firm based in Las Vegas and is a member of Leadership Advance Las Vegas, a member of the Advisory Board for KCEP 88.1, a member of Alpha Kappa Alpha Sorority Incorporated, and a Board of Trustee member for Cristo Rey S. Viator, a college preparatory high school.