Durbin-Marshall Credit Card Bill Faces Backlash from Businesses and Consumers

The Durbin-Marshall Credit Card Bill, which is bound to be reintroduced this Congress, represents a misguided attempt to regulate the credit card industry in a way that could harm American consumers and businesses. While major retailers like Walmart, Target, and Home Depot support the bill, its consequences for small businesses, consumers, and financial institutions could be disastrous.

At the heart of the bill is a proposal to regulate credit card transaction processing. Proponents argue that it will create a more competitive system, but evidence suggests otherwise. Interchange fees, often blamed for rising costs, have actually remained stable for the past seven years. The real issue for many merchants is not rising fees, but increasing sales, which naturally lead to higher processing costs.

One of the most troubling provisions of the bill is the mandate on transaction routing. Supporters claim it will reduce prices for consumers, but history tells a different story. A study by the Federal Reserve of Richmond found that similar regulations under the 2010 Durbin Amendment led 98% of merchants to either raise prices or keep them the same. In other words, consumers are unlikely to see any benefit from the proposed changes, while businesses could face additional burdens.

The bill also claims to exempt small banks and credit unions, but these institutions have already suffered significant losses in revenue under similar regulations. Data from the Federal Reserve reveals a 10% to 30% decrease in revenue from 2011 to 2019, despite the supposed exemptions. These losses are likely to continue under the new bill, further hurting community financial institutions that many consumers rely on.

Small businesses are also at risk. Credit card processing fees make up just 1% of total business costs, far less than expenses like rent, wages, and taxes. By focusing on processing fees, the bill ignores the larger financial challenges faced by small business owners. Worse yet, the legislation could hurt local economies, with studies predicting a loss of $23.4 billion in economic activity and the potential loss of 183,000 jobs in sectors like travel and tourism.

Another major concern is the impact on credit card rewards programs. These programs returned $60 billion to consumers in 2020, benefiting families across all income levels. The bill could eliminate these rewards, removing a valuable financial benefit that millions of Americans depend on.

Perhaps most troubling of all is the potential for increased security risks. By allowing merchants to control transaction routing, the bill could weaken data security and expose consumers to the same types of breaches that plagued retailers like Target, Home Depot, and Wawa in the past.

The U.S. payment market is already highly competitive, with consumers having access to a wide range of payment options, including credit cards, debit cards, fintech solutions, cash, and checks. Further regulation is unnecessary and risks creating more problems than it solves.

The Durbin-Marshall Credit Card Bill is bad policy that will hurt consumers, small businesses, and financial institutions. Lawmakers should carefully reconsider this legislation and its far-reaching consequences before moving forward.