The legislation, reintroduced last summer by Senators on both sides of the aisle – including US Senate Majority Whip Dick Durbin (D-Ill.), who chairs the Senate Judiciary Committee, and incoming Vice President and current Sen. JD Vance (R-Ohio) – seeks to build on credit card competition reforms enacted by Congress in 2010 by directing the Federal Reserve to require large banks with assets over $100 billion that issue credit cards to enable at least two credit card networks to route financial data for purchases.
The legislation targets the “Visa-Mastercard duopoloy,” which controls 80% of the market and has a “stranglehold on credit card swipe fees” that have exponentially increased in recent years – driving up prices on everyday essentials, Vance said when the legislation was reintroduced in June 2023.
Credit card swipe fees on average range from 2% to 4% of a transaction, but do not appear on receipts or monthly bills so that most consumers are unaware of them. At the same time, most retailers, which are required to accept all cards, are in the dark about the amount of the fee, which varies by card type, until a transaction goes through, according to the Merchants Payments Coalition Executive Committee member and National Association of Convenience Stores General Counsel Doug Kantor, who testified Nov. 19 at the Senate Judiciary Committee hearing, ‘Breaking the Visa-Mastercard Duopoly: Bringing Competition and Lower Fees to the Credit Card System.’
Since the Committee’s last hearing on swipe fees, merchant’s total swipe fees increased by $34.25 billion from $137.8 billion in 2021, according to FMI – The Food Industry Association, which cited Nielsen Report data in a statement submitted to the Senate Judiciary Committee for yesterday’s hearing.
“In 2023, merchants’ credit and debit card fees totaled $172.05 billion, an increase of 7.1% from the previous year; of this total, $100.7 billion in fees were assessed on merchants to accept Visa and Mastercard-branded credit cards,” FMI said.
“The billions of dollars in swipe fees artificially drive up the price consumers pay for goods and services,” it added, explaining, “Retailers are forced to incorporate these fees in their pricing decisions and sell items at the ‘credit card’ price to cover costs.”
As a result, the average American family paid an estimated extra $1,100 per year to cover these costs, added Kantor.
Under the current system, FMI added, “card networks and banks issuing cards make more of a profit off a grocery purchase than the store does” because the average margin in the grocery industry is about 1.6% compared to the average swipe fee of 2% to 4%.
The National Retail Federation argued in a letter sent to the committee ahead of the hearing that the Credit Card Competition Act would provide a “common-sense solution” to “arbitrarily high swipe fees [that] are adding inflationary pressure to the US economy” by “finally [bringing] competition to the credit card routing market” and increasing transparency into the payment system.
Would savings from lower swipe fees be passed to consumers?
Representatives for Visa and Mastercard pushed back against the legislation and argued the fees are necessary to support innovative payment systems and ensure security for payments.
“While proponents of the CCCA claim the bill will lower fees and that those purported savings will be passed on to consumers, we learned from experience under existing debit regulation that this will not happen,” Bill Sheedy, senior advisor to the CEO of Visa, told legislators at the hearing.
He explained when a federal measure known as the Durbin Amendment was introduced to limit transaction fees collected during debit card purchases went into effect data from the Federal Reserve Bank of Richmond found “only 1.2% of merchants reduced retail prices, and as many as 22% of merchants actually increased pricing.”
He argued, “Similarly, under the CCCA, reduced card revenue will actually result in financial institutions – especially small and community-owned banks – finding it increasingly difficult to fund and offer credit access and rewards to businesses and consumers. These changes will disproportionately impact small businesses and lower-income Americans, stifling economic growth across the country.”
He also urged policymakers to “consider how proposed legislation like the CCCA, by impairing the current dynamism of credit card competition, might also shift consumer spending to payment options that are less regulated, less secure, more vulnerable, or more reliant in their business model on monetizing consumer data.”
How likely is passage of CCCA?
Whether or not the legislation will pass during this session remains unclear as Senate Judiciary Committee’s attention – and that of most legislators – is on shoring up political interests before the new Trump Administration is inaugurated and Republicans take control of Senate and House.
For example, the Senate Judiciary Committee currently is trying to confirm as many federal judges as possible before the term ends.
Likewise, the CCCA has not attracted additional Senate sponsors this year and little movement on the issue has occurred since the bill was reintroduced a year and a half ago.
However, even if the act does not move before the session ends, it could find traction if reintroduced in a new term as it does have the support of powerful Republicans, including Vance, who may choose to push it forward once they take control of Congress.
