Legislation giving merchants broad say over which credit card routing networks they use will be a security risk for consumers as well as a blow to banks of all sizes, bank and credit union representatives said Wednesday during a well-attended briefing on S. 4674 for Capitol Hill staff hosted by ABA and the National Association of Federally-insured Credit Unions. The bill, introduced by Sens. Roger Marshall (R-Kan.) and Dick Durbin (D-Ill.), is supposed to apply only to banks with more than $100 billion in assets, but ABA board member Shan Hanes, CEO of Heartland Tri-State Bank and chair of Kansas Bankers Association, said his 28-employee bank heard the same story with the Durbin amendment of the last decade. “We’ve been carved out before and we got carved up instead,” he said.
“We’re far too small to issue our own credit cards,” Hanes said. “However, we want to be able to offer credit cards to our customers, so we partner with a large institution to issue those cards.… As I look at this bill, what concerns me most are the consumers: this bill does nothing to protect the consumer, it does nothing to help the consumer financially and, frankly, it puts their most sensitive data at risk to fraudsters.”
Lavonne Heaviland, president of centralized operations at FirstBank in Colorado, raised similar concerns while adding that S. 4674’s dual routing mandate means higher processing costs, which will be passed on to issuers and merchants alike. “That will impact customers because rising costs means that issuers will have to make tough decisions that come down to: How do we manage our reward programs, which are funded by interchange revenue? How do we maintain consistency within the networks and provide innovation to our customers? Does that mean that we will have to reintroduce annual fees for credit cards, which will then impact the ability for low- to moderate-income customers to be able to get access to rewards programs?”
There are many standards in place that govern how financial institutions and merchants alike protect consumer data, added ABA SVP Paul Benda. “If we start removing those controls, and we start making this a price-sensitive thing where merchants want to get the cheapest option they can to save more money, you’re going to start seeing those controls go away and you’re going to start seeing a less-protective environment.”
The panelists also expressed concern about the Federal Reserve’s proposal to expand Regulation II, which implemented the Durbin amendment on debit cards, and is the regulatory equivalent of the Marshall-Durbin dual-routing bill in key respects. The proposal would mandate that banks of all sizes offer new payments options to merchants regardless of whether those are in the best interest of cardholders. ABA and more than 1,400 community financial institutions have called for the Fed to withdraw its proposal due to the likely impacts on fraud costs and small financial institution competitiveness.