ABA, associations warn credit card routing bill would harm consumers

Despite its name, the Credit Card Competition Act would not increase competition but instead reduce the number of credit card issuers, reduce competitive differentiation among card products, limit popular credit card rewards programs and expose the nation’s private-sector payments system to micromanagement by the Federal Reserve, the American Bankers Association and nine financial sector trade groups said today in a joint letter to congressional leaders. Other signatories include the Independent Community Bankers of America, the Association of Military Banks of America and the National Bankers Association.

The bill, which would impose network routing requirements on banks that issue credit cards, was reintroduced in Congress this week after it failed to advance last year due to the efforts of bankers and other stakeholders. In their letter, the groups listed what they said would be the many adverse effects of the legislation, including fewer options for consumers, greater threats to consumer data and privacy, weakened community banks and credit unions, and the disappearance of card rewards programs that families of all income levels use to stretch their budgets.

“This experiment has been tried before, with the Durbin amendment on debit cards, leading to a precipitous drop in the availability of low-cost banking services and free checking accounts for consumers,” the groups said. “A recent [Government Accountability Office] report found that the Durbin amendment was ‘among the top five laws and regulations most cited…as having significantly affected the cost and availability of basic banking services.’”

The associations noted that community banks and credit unions suffered a 30% decrease in interchange revenue despite being supposedly exempt from the Durbin amendment. “Though the restrictions for ‘exempt’ issuers are not explicit price controls, they have the same practical effect of distorting the market and transferring wealth from community financial institutions and consumers to a handful of high-volume, highly profitable large merchants,” they said. “There is no surer way to disrupt the economics of small credit card issuers than to enact this legislation, which will wipe out already-thin margins of lower-volume issuers, causing them to leave the credit card market and concede the product category to larger firms better able to absorb these changes.”