At the end of 2022, Congress united to address critical priorities through the end-of-year omnibus spending bill. While it secured funding for various essential projects, concerns arose regarding potential negative implications for consumers. Specifically, the exclusion of the Credit Card Competition Act (CCCA) from the omnibus bill is a relief, but the battle to safeguard consumers is far from over.
The CCCA, championed by big-box retailers like Amazon and Walmart, aimed to expand an existing debit-card policy to credit cards, primarily benefiting corporate retailers while potentially harming consumers. Although the CCCA did not find its way into the omnibus bill this time, the persistence of greedy big-box stores suggests that bill sponsors will likely reintroduce it during the 2023 legislative session. Examining the adverse effects of previous debit regulations on consumers, it becomes evident that the CCCA could have similarly detrimental consequences.
Following the implementation of the original debit amendment, retail giants such as Walmart and Amazon witnessed a staggering $106 billion increase in profits.
Unfortunately, consumers reaped minimal benefits from these gains. According to the Richmond Federal Reserve, 98 percent of retailers either maintained or increased their prices after the amendment. As a result, banks, burdened by substantial losses, responded by reducing free checking options and imposing higher account fees.
A 2017 Federal Reserve study revealed a 35 percent decline in free checking accounts at large banks and a 15 percent decline at small banks. This contributed to indirect consumer losses estimated at $22 billion to $25 billion, particularly affecting marginalized communities.
Given the magnitude of the nation's credit market, enacting the CCCA would be catastrophic for consumers' financial well-being. Banks would face significant losses, which they would likely pass on to consumers through higher interest rates, increased fees, the elimination or reduction of rewards programs, and stricter credit standards. Consequently, an estimated $40 billion to $50 billion annually would be redirected from Americans' pockets to big-box retailers.
Looking at international examples, we find evidence supporting the notion that the CCCA is ill-advised. In Australia, when the Reserve Bank implemented similar credit regulations limiting interchange fee revenue, the consequences were dire. Today, virtually no free credit cards are available, and consumers bear the burden of substantial account fees. Credit cards have become more expensive and less accessible for Australians.
Furthermore, the CCCA poses security risks for consumers. Currently, interchange revenue supports crucial consumer security measures and safeguards against credit card fraud, ensuring that consumers are not held liable for fraudulent transactions. This approach has proven highly successful.
In 2019, Mastercard reported that banks absorbed over $45 billion from fraudulent transactions and unpaid credit card bills. However, if routing mandates require credit cards to utilize additional networks that prioritize cost-cutting over security, transactions routed through less secure networks could jeopardize consumers, merchants, and financial institutions.
Although the impacts of the CCCA extend beyond the realm of credit cards, it is essential to recognize its potential implications for small businesses, including family-owned hospitality establishments. With inflation, rising gas prices, and soaring grocery costs, small businesses and individuals cannot afford further financial burdens.
The CCCA introduces layers of uncertainty. It remains unclear whether forthcoming bills will include provisions to lock interchange fees for credit cards, similar to the initial Durbin amendment. The combination of limited access to credit cards and compromised consumer safety makes the CCCA an unfavorable proposition for small businesses and consumers alike, as they would bear the additional costs of products and services.
The potential consequences of the CCCA are clear: consumers will face fewer options, increased threats to their data and privacy, weakened community banks and credit unions, and the disappearance of valuable card rewards programs that families across all income levels rely on to stretch their budgets. It is imperative that Congress prioritizes consumer protection over corporate interests to safeguard the financial well-being and security of individuals and businesses alike.