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Bipartisan legislation aims to lower credit card swipe fees

Experts doubt whether the proposal would be good for consumers

Paying by credit card concept
Photo (c) Chainarong Prasertthai - Getty Images
Two U.S. Senators, one a Democrat and the other a Republican, have introduced legislation to allow businesses to have alternatives to current credit card processing networks. The sponsors say their bill would reduce “swipe fees” that are a burden to small businesses and increasingly are passed along to consumers.

Sen. Dick Durbin (D-Ill.) and Sen. Roger Marshall (R-Kan.) introduced the Credit Card Competition Act of 2022, saying it would introduce competition to a market that is currently dominated by Visa and Mastercard.

Building off of debit card competition reforms enacted by Congress in 2010, the lawmakers say their bill would direct the Federal Reserve to ensure that giant credit card-issuing banks offer a choice of at least two networks over which an electronic credit transaction may be processed. 

‘Devastating effect’

Jay Zigmont, founder of Childfree Wealth, says lowering swipe fees may impact consumers. However, he also says it will most likely take time before consumers notice. Ted Rossman, a senior industry analyst at Bankrate, believes the measure would be “very bad” for consumers.

“For starters, it would have a devastating effect on credit card rewards programs,” Rossman told ConsumerAffairs. “Debit card rewards all but disappeared after Sen. Durbin’s eponymous Durbin Amendment took effect in 2011. It capped debit card interchange fees, removing a key funding source of debit card rewards. Sen. Durbin and others argued that consumers would benefit from lower prices. Merchants won’t admit it, but they pocketed the savings.”

In other words, Rossman says it’s far from certain that the savings from lower swipe fees would be passed along to consumers. Isaac Tebbs, head of growth at Millions, says the credit card industry would take steps to make up the lost revenue if possible, which would ultimately affect consumers.

“The credit card industry would be adversely affected by this legislation, but it is unlikely to be a death knell,” Tebbs told us. “Credit card companies would likely respond by reducing the rewards they offer to consumers and by increasing other fees, such as annual fees.”

Higher fees

Richard Gardner, CEO at Modulus, also agrees that this legislation would have some unintended consequences for consumers. He points to the Durbin Amendment, which he said led to the wholesale cancellation of debit card rewards programs.

“But, that's not all,” Gardner told ConsumerAffairs. “Surveys from the time showed that the monthly fees on non-interest checking accounts jumped by 25% and the minimum balance requirements for free checking accounts rose by nearly that amount. Perhaps worst of all, large banks attempted to institute monthly debit card fees on consumers as a response to the new regulation on interchange fees, though they gave up on the idea after customers revolted.”

Durbin argues that the legislation is needed to help small businesses that are struggling against high inflation and rising credit processing costs. He points out that many small businesses now charge consumers an extra 3.5% to cover swipe fees. 

Durbin said the bill would give businesses “a meaningful choice” when it comes to credit card processing networks and help reduce their costs. While that might be true, the experts we consulted expressed strong doubt that consumers would be the beneficiaries.

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