For nearly 15 years, the idea that legislating network competition would naturally translate into consumer benefit has been tested repeatedly, and in operation, not always too favorably. As Congress revisits that premise once more, a broad coalition of banking associations is urging lawmakers to reject the Durbin-Marshall Credit Card Competition Act.
In a joint letter to Congress, these industry associations warn that expanding routing mandates into the credit card market would do far more harm than good for consumers, small businesses, and community-based financial institutions. They argue that the bill would function less like competition policy and more like a backdoor price control, shifting costs and risks while delivering most of the benefits to the largest retailers.
At the center of the concern is the bill’s proposal to impose new network routing requirements on credit cards, building on the original Durbin amendment’s debit framework. The associations point to the rather robust “sample-size” of the past 15 years, treating the years’ hindsight on interchange as a cautionary tale. Federal Reserve data and outside studies show that prices rarely fell, rewards were cut back, and smaller institutions (despite being “exempt”) still experienced meaningful revenue declines that reduced lending capacity and investment in fraud prevention.
In that same vein, the groups continue to push back on the notion that this legislation would help small businesses or consumers. Research cited in the letters suggests that nearly all projected savings would accrue to retailers with more than $500 million in annual sales, while smaller merchants could lose access to rewards-driven customer spending and face higher fraud exposure. Meanwhile, low-income and minority consumers – groups that may disproportionately feel the effects – would likely see those programs scaled back or eliminated, with little evidence that retailers would pass along any cost savings.
To that end, fraud appears to be not only a primary concern, but perhaps part-and-parcel to such legislation. Studies cited from Texas A&M and others suggest that forcing transactions onto less-secure networks could significantly increase card fraud over time, while simultaneously reducing the revenue banks use to invest in fraud detection and data security. That combination, they argue, risks making the payments system less secure overall – a cost borne by consumers and small businesses alike.
The renewed opposition also lands against a backdrop of active and evolving legislative discussions around the scope of the Durbin framework itself. In sum, the message here is essentially that expanding Durbin-style mandates into credit cards may be pitched as competition, but the historical record suggests it’s more likely to concentrate benefits, erode consumer protections, and weaken community lending. Or, as the associations’ letter poignantly concludes:
“The payment card system is convenient, secure, and hassle-free. It protects consumers against fraud, guarantees businesses receive timely payments, funds reward programs like cash back, and powers the American economy, from brick-and-mortar establishments to innovative ecommerce platforms 24 hours a day, seven days a week, 365 days a year. The Durbin-Marshall bill, and any other legislation that intervenes in the credit card market, puts all that in jeopardy.”
Newsletter written by:
Brett Goodnack
Compliance Advisor