Bill introduced to create competition in credit card market, lower fees

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Published: Jul. 30, 2022 at 1:07 PM CDT
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TOPEKA, Kan. (WIBW) - Senator Roger Marshall has helped to introduce a new bill to infuse the credit card industry with new blood and competition lowering prices of fees for customers.

U.S. Senator Roger Marshall (R-Kan.) says he and U.S. Senate Majority Whip Dick Durbin (D-Ill.) to introduce the bipartisan Credit Card Competition Act of 2022, which would enhance the competition and choice in the credit card network market - currently dominated by the Visa-Mastercard duopoly.

Building off of debit card competition reforms enacted by Congress in 2010, Sen. Marshall said the bill would direct the Federal Reserve to ensure giant credit card-issuing banks offer a choice of at least two networks over which an electronic credit transaction can be processed - with certain exceptions.

“When it comes to Main Street vs Wall Street, I’ll choose Main Street every time,” Marshall said. “Convenience stores, gas stations and other small businesses in Kansas are being taken advantage of by Visa and MasterCard on behalf of big banks in New York City at a time when they, and the communities they serve, are grappling with crippling inflation and staring down the barrel of a looming recession. It’s gone on long enough. Competition is the heartbeat of capitalism and that is what our bill will create competition.”

Currently, Marshall said there are four credit card networks in the U.S. - Visa, Mastercard, American Express and Discover. He said Visa and Mastercard are known as “four-party” networks as they act as agents for thousands of card-issuing banks and mandate fees and terms that the banks receive from merchants for each transaction. The merchants then have effectively no leverage to negotiate fee rates and terms in this type of system because they cannot risk losing access to all the customers served by Visa’s and Mastercard’s member banks.

“Credit card swipe fees inflate the prices that consumers pay for groceries and gas.  It’s time to inject real competition into the credit card network market, which is dominated by the Visa-Mastercard duopoly,” said Durbin. “This legislation, which builds upon pro-competition reforms Congress enacted in 2010, would give small businesses a meaningful choice when it comes to card networks, and it would enable innovators to gain a foothold in credit cards.  Bringing real competition to credit card networks will help reduce swipe fees and hold down costs for Main Street merchants and their customers.”

Marshall noted that Visa and Mastercard wield a huge market power in credit cards - according to the Federal Reserve, the pair accounts for nearly 576 million cards, or about 83% of general-purpose credit cards. He said about $3.49 trillion was transacted on cards from either company in the U..S in 2021 and their power and network structure has enabled them to impose fees amassing to $77.8 billion in 2021.

The Senator indicated that the fees include interchange or swipe fees, which Visa and Mastercard require merchants to pay to banks, as well as network fees that the companies require merchants to pay directly to them. He said customers ultimately pay for all of these fees in the price of goods and services they purchase.

“NFIB members support increased competition for credit card processing networks,” said Jeff Brabant, Senior Manager, Federal Government Relations, National Federation of Independent Business. Competition will result in lower fees, which have increasingly cut into the razor-thin profit margins of small businesses. NFIB appreciates Senators Marshall and Durbin for introducing this important legislation, which aims to inject competition by allowing small businesses the freedom to choose between multiple credit card processing networks.”

Under the new legislation, Marshall said the Federal Reserve would issue regulations within one year and ensure that banks in four-party card systems that have assets over $100 billion cannot restrict the number of networks on which a transaction can be processed to less than two unaffiliated networks - at least one of which must be outside the top two largest networks.

Marshall noted the move would inject real competition into the credit card market and open doors for new entrants such as current debit-only networks. He said it would also encourage innovation and enhanced security thereby creating backup options if a network crashes, as well as exert competitive constraints on Visa and Mastercard’s fee rates.

In April, Marshall said he, Durbin, and U.S. Reps. Peter Welch (D-VT) and Beth Van Duyne (R-TX) sent a letter to the CEOs of Visa and Mastercard to urge them not to proceed with plans to raise their interchange fee rates. He said the companies ignored the call and raised the rates, which prompted a Senate Judiciary Committee hearing in May on excessive swipe fees and barriers to competition in the credit card system.

To read the full text of the legislation, click HERE.

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