Credit Card Competition Act of 2022

In April of 2022, Durbin, Marshall, and U.S. Representatives Peter Welch (D-VT) and Beth Van Duyne (R-TX) sent a bipartisan, bicameral letter to the CEOs of Visa and Mastercard urging the companies not to proceed with plans to raise their interchange fee rates.

Visa and Mastercard nonetheless proceeded to raise fee rates, prompting Durbin to hold a Senate Judiciary Committee hearing in May on excessive swipe fees and barriers to competition in the credit card system.

Then, on July 28th, 2022, U.S. Senate Majority Whip Dick Durbin (D-IL) and U.S. Senator Roger Marshall, M.D. (R-KS) introduced the bipartisan Credit Card Competition Act of 2022, legislation that would enhance competition and choice in the credit card network market, which is currently dominated by the Visa-Mastercard duopoly.  Building off of debit card competition reforms enacted by Congress in 2010, the bill would direct the Federal Reserve to ensure that giant credit card-issuing banks offer a choice of at least two networks over which an electronic credit transaction may be processed, with certain exceptions.

“Credit card swipe fees inflate the prices that consumers pay for groceries and gas. It’s time to inject real competition into the credit card network market, which is dominated by the Visa-Mastercard duopoly,” said Durbin. “This legislation, which builds upon pro-competition reforms Congress enacted in 2010, would give small businesses a meaningful choice when it comes to card networks, and it would enable innovators to gain a foothold in credit cards.  Bringing real competition to credit card networks will help reduce swipe fees and hold down costs for Main Street merchants and their customers.”

“When it comes to Main Street vs Wall Street, I’ll choose Main Street every time,” said Marshall. “Convenience stores, gas stations and other small businesses in Kansas are being taken advantage of by Visa and MasterCard on behalf of big banks in New York City at a time when they, and the communities they serve, are grappling with crippling inflation and staring down the barrel of a looming recession. It’s gone on long enough. Competition is the heartbeat of capitalism and that is what our bill will create, competition.”

“NFIB members support increased competition for credit card processing networks,” said Jeff Brabant, Senior Manager, Federal Government Relations, National Federation of Independent Business. “Competition will result in lower fees, which have increasingly cut into the razor-thin profit margins of small businesses. NFIB appreciates Senators Marshall and Durbin for introducing this important legislation, which aims to inject competition by allowing small businesses the freedom to choose between multiple credit card processing networks.”

There are currently four U.S. credit card networks: Visa, Mastercard, American Express, and Discover.  Visa and Mastercard are known as “four-party” networks; they act as agents for thousands of card-issuing banks and mandate the fees and terms that the banks receive from merchants for each transaction.  Merchants have effectively no leverage to negotiate fee rates and terms in four-party network systems, because they cannot risk losing access to all the consumers served by Visa’s and Mastercard’s member banks.

Visa and Mastercard wield enormous market power in credit cards; according to the Federal Reserve, they account for nearly 576 million cards, or about 83 percent of general-purpose credit cards. Approximately $3.49 trillion was transacted on Visa and Mastercard credit cards in the U.S. in 2021.  Visa’s and Mastercard’s market power and network structure have enabled them to impose fees on U.S. merchants that are among the world’s highest, charging a total of $77.48 billion in U.S. merchant credit card fees in 2021.   These fees include interchange or swipe fees which Visa and Mastercard require merchants to pay to issuing banks, as well as network fees that Visa and Mastercard require merchants to pay directly to them.  Consumers ultimately pay for all of these fees in the price of the goods and services they buy.

Under the Credit Card Competition Act, the Federal Reserve would issue regulations, within one year, ensuring that banks in four-party card systems that have assets of over $100 billion cannot restrict the number of networks on which an electronic credit transaction may be processed to less than two unaffiliated networks, at least one of which must be outside of the top two largest networks. This would inject real competition into the credit card market—opening the door for new market entrants such as current debit-only networks, encouraging innovation and enhanced security, creating backup options if a network crashes, and exerting competitive constraints on Visa and Mastercard’s fee rates.

Senator Richard Durbin, the Illinois Democrat who authored the 2010 legislation known as the Durbin Amendment, has a plan for upending credit card processing. The Credit Card Competition Act, authored by Senators Durbin and Roger Marshall, R-Kan., would require that every merchant get to choose which network processes its credit card payments, and only one of those networks can be operated by Mastercard or Visa.

The bill was introduced in July 2022, with Sen. Durbin asserting it would "inject real competition into the credit card network market, which is dominated by the Visa-Mastercard duopoly."

In October, Senators Durbin and Marshall tried fast-tracking the legislation by appending it as an amendment to a massive defense spending measure. While that plan was scuttled, it likely is not a once-and-done legislative maneuver. "The threat of Durbin Amendment expansion remains," the Independent Community Bankers Association said in a statement. That same defense spending bill is slated for another vote later this month.

A similar bipartisan bill was introduced in the House by Representatives by Peter Welch, D-Vt., and Lance Gooden, R-Texas. "For too long the credit card companies and the nation's top financial institutions have collaborated to sideline community banks and local retailers in Texas," Gooden said. He added that his backing of the bill fulfills a "pledge to protect small businesses and ensure these companies can no longer use their monopolistic power to crush their competition."

But opponents argue that the bill will benefit the nation's largest retailers to the detriment of small businesses, financial institutions and ultimately consumers. And they point to the Durbin Amendment as evidence.

The Durbin Amendment, passed as part of comprehensive financial reform legislation, called for capping debit card interchange, as well as for allowing merchant choice in networks used to process debit cards. Durbin and other supporters hoped the legislation would save merchants money and that some of the savings would be passed on to consumers.

For covered Financial Institutions (those with $10 billion, or more, in assets) debit interchange rates were capped at 21 cents plus 5 basis points. The going debit interchange was 1 to 3 percent at the time, so the revenue loss was significant. The Electronic Payments Coalition estimated debit card issuers lost $106 billion in interchange revenues in the first 10 years under Durbin.

A 2015 study by the Federal Reserve Bank of Richmond, however, found little evidence merchants were passing along those savings to customers. In fact, 21.6 percent of merchants surveyed by the Richmond Fed had actually raised prices, while 77.2 percent kept prices the same.

Of course, it's tough to quantify merchant savings given the array of interchange rates and pricing structures. "The regulation assumes everybody is on interchange-plus," said Elaina Smith, COO at Secure Bancard. "But interchange is a very narrow piece of card acceptance costs."

Smith noted that merchants on flat pricing, for example, didn't see any changes post Durbin, while those with mostly small tickets saw costs soar. At 22 cents, the interchange on a $5 cup of coffee works out to about 4 percent.

Many consumers also took financial hits when Financial Institutions raised account fees and scrapped rewards programs to recoup lost interchange revenue. A 2012 study by the Discover-owned EFT network Pulse, for example, found half of  Financial Institutions  covered by the law had ended their debit card rewards programs in the first year under Durbin caps.

Giving small business owners more credit card network options will force larger credit card companies to compete with each other to lower swipe fees and provide more options for small businesses.

Take Action‍

Tell Congress to rein in credit card swipe fees and allow small business owners the ability to choose between credit card networks.

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