As a consumer, you’ve probably had your credit card compromised. You understand what a headache it can be—having your card deactivated, having to wait on a new card, disputing any charges and wondering the impact of fraud on your credit. Last week, lawmakers introduced Card Competition Act – S. 1838 & H.R. 3881, also known as the “Big Box Bill” for its benefit to large retailers. This proposed legislation will only increase data breaches.
What is interchange?
Merchants pay an interchange fee to defray the costs of data breaches. This fraction of a cent per dollar spent keeps your credit card safe from would-be hackers, and helps ensure that you, and the retailer you paid, aren’t responsible for any fraudulent purchases. Interchange is essentially the cost of doing business in the 21st century.
What would happen if the “Big Box Bill” passed?
This proposed legislation would weaken the interchange system and would result in higher fees and interest rates, along with less security and less access.
How does the “Big Box Bill” impact credit unions?
You may have heard that there’s an exemption for institutions under $100B, so doesn’t that mean this won’t affect credit unions? No.
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. A recent GAO 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.”
Further, the merchant lobby’s promise that this regulation would result in savings for consumers never happened – the merchants pocketed the savings. According to the Federal Reserve Bank of Richmond, after the Durbin Amendment was implemented, 98.8% of merchants failed to pass-through savings realized from debit regulation to consumers, and over 20% increased prices.
Most dangerously, this central planning of the major conduit for money in our economy will reduce access to banking services and harm community financial institutions. While supposedly “exempt” from the Durbin Amendment, community banks and credit unions still suffered a 30% decrease in their interchange revenue. 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.
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.
So, while saying that small institutions are exempt, this is simply not possible with a system that’s already built and already works. Larger institutions forced to comply will likely lead to having their cards preferred by merchants. These changes will also inevitably lead to more fraud as you see merchants searching for the cheapest, least safe way to route their transactions.
What can you do?
We need all stakeholders to send messages of opposition to show the very real harm this bill will bring to financial institutions, consumers and small businesses, just to give big box retailers a bigger slice of the pie. Use the Grassroots Action Alert Center to send messages to your lawmakers.
As always, your League is working with CUNA and our partners to monitor this legislation. But we need your support to tell lawmakers that you oppose this recent legislation. Learn more by visiting the Interchange Works website.