Senator Dick Durbin of Illinois, the Senate Majority Whip and a member of the Democratic Party is actively advocating for changes in the credit-card industry. During Congress’s current lame-duck session, he is championing a bill that proposes shifting the cost of processing card transactions from retailers to consumers. His goal is to boost competition, lower fees for both merchants and consumers and tackle the dominance of major credit cards networks such as Visa and Mastercard. At the heart of his efforts is the Credit Card Competition Act, which he introduced two years ago.

The proposed Credit Card Competition Act would mandate that card issuers facilitate payments on at least two networks, one of which must be an alternative to Visa or Mastercard. The legislation would exempt issuers with assets under $100 billion, but it would still impact over 83% of cardholders.

As he nears the end of his tenure as Judiciary Committee chairman, Senator Durbin is focusing on promoting this bill. In a recent hearing, he referred to it as a potential remedy for inflation, highlighting its significance in the current economic climate.

Key Takeaways

• Challenging Visa and Mastercard’s Dominance: The Credit Card Competition Act aims to reduce Visa and Mastercard’s market power, which handles over 80% of U.S. credit card transactions, by requiring large banks to support at least one alternative payment network.
• Reducing Merchant Costs: The proposed legislation seeks to lower merchant interchange fees (swipe fees) by promoting competition. This could potentially reduce consumer prices and ease financial pressure on small businesses.
• Bipartisan Support with Challenges: Although the bill has backing from both parties, it faces strong opposition from major credit card companies and industry groups, which argue it could disrupt systems and affect popular rewards programs.
• Potential Consumer Impact: Proponents argue that increased competition could save consumers billions annually, but critics warn about potential reductions in credit card rewards and other consumer benefits if the reforms are implemented.

Senate Dick Durbin Pushes for Credit Card Competition to Lower Swipe Fees and Consumer Costs

The U.S. credit card market is largely dominated by Visa and Mastercard, which handle over 80% of all credit card transactions. This has raised concerns over the high interchange fees, commonly referred to as swipe fees, that merchants incur with each transaction. These costs often trickle down to consumers, contributing to higher prices. In 2023, merchants forked over $100 billion in swipe fees on cards branded by these two giants.

Senator Dick Durbin, a Democrat from Illinois, is using his final days in a majority leadership position to push for greater competition within the credit card network market. As his party prepares to relinquish control of the Senate in January, Durbin is making a concerted effort to address this issue.

A hearing titled “Breaking the Visa-Mastercard Duopoly: Bringing Competition and Lower Fees to the Credit Card System” was scheduled earlier this month. The announcement provided just the basics—title, time, and location—with no details on the agenda or who might testify.

Senator Durbin’s motivation for pushing these reforms comes from a deep-seated desire to encourage more competition in the credit card network market, lower fees, and deliver cost savings to consumers. His past legislative work includes the Durbin Amendment in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which aimed to cap debit card interchange fees. The Credit Card Competition Act of 2022 continues its efforts toward financial reform.

This act is a bipartisan initiative co-sponsored by Senators Peter Welch (D-VT), J.D. Vance (R-OH), and Roger Marshall (R-KS). The proposed legislation aims to reduce Visa and Mastercard’s market control, foster increased competition, and offer more options within the credit card network industry.

Senator Durbin highlighted an often-overlooked factor that affects the prices we pay for everyday items, from furniture to eggs: credit card swipe fees. He aims to lessen credit card networks’ pricing power and advocate relief for consumers feeling the pinch.

Morgan Harper, Policy and Advocacy Director at the American Economic Liberties Project stated that the control Visa and Mastercard have over the credit card network market effectively acts as an unseen tax on every American family and small business. This dominance leads to inflated prices on essentials like groceries and gas while channeling billions into corporate coffers. Harper advocates for the Credit Card Competition Act, asserting it would bring much-needed competition into the market, potentially saving consumers and businesses over $16 billion annually without compromising security or rewards. She dismisses the credit card industry’s dire warnings and baseless claims as mere tactics to maintain their monopoly against even slight competition. She calls for Congress to adopt this practical solution.

Senator Durbin echoed this sentiment, noting bipartisan agreement among the most conservative and liberal members that action is needed to support small business owners nationwide. He warned Visa and Mastercard, saying, “You awakened a sleeping giant. Retailers and merchants across America have had enough.” Durbin highlighted that these businesses struggle to survive in an inflationary environment without relief. His proposal emphasizes the need for competition regarding swipe fees, urging the provision of alternative processing options beyond just Visa and Mastercard to alleviate the financial burden on merchants.

Key provisions of the act include:

• Network Choice Requirement: The proposed bill mandates that major credit card-issuing banks, specifically those with assets exceeding $100 billion, provide at least two network options for processing electronic credit transactions. Crucially, one of these networks must be an alternative to Visa or Mastercard. This requirement aims to disrupt the prevalent situation where these two dominant networks predominantly process transactions.
• Prohibition of Routing Restrictions: The act prohibits credit card issuers from imposing limitations on routing electronic credit transactions. This means merchants would be free to choose the network through which a transaction is processed, potentially opting for networks that offer lower fees.
• Security Considerations: The Federal Reserve would design payment card networks that pose a security risk to the United States or are owned, operated, or sponsored by a foreign state entity. This measure ensures that introducing new networks does not compromise national security.

Despite its bipartisan support, the Credit Card Competition Act has faced significant challenges in Congress. Since its introduction, the bill has been stymied by opposition from major credit card companies, banks, and some industry groups. These entities argue that the legislation could disrupt existing systems and potentially harm consumers by reducing the availability of credit card rewards programs.

In response to these concerns, Senator Durbin has emphasized that the act promotes competition and lowers fees without eliminating consumer benefits. He has pointed to the success of similar reforms in the debit card market, where increased competition led to reduced fees and maintained consumer access to debit card services.

Impact on Consumers and Merchants

Proponents of the Credit Card Competition Act argue that increased competition among credit card networks would lead to lower interchange fees, which could result in lower consumer prices. Merchants, particularly small businesses, would benefit from reduced operating costs, allowing them to invest more in their businesses and potentially pass savings on to customers.

However, critics contend that the reduction in fees could lead banks and credit card companies to cut back on rewards programs, such as cashback offers and travel points, which are popular among consumers. Airlines and other companies that partner with credit card issuers have expressed concerns that the act could undermine the financial viability of these programs.

Additionally, the Durbin Amendment, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, aimed to boost competition in the debit card sector by capping interchange fees and regulating how transactions are routed. Despite being in place for over ten years, its effectiveness is now under scrutiny. In September 2024, the U.S. Department of Justice launched an antitrust lawsuit against Visa, alleging that the company has monopolized the debit card transaction market. This monopoly is said to have hindered competition and resulted in elevated fees for both merchants and consumers.

The timing of the hearing, just as Donald Trump is set to assume the presidency and with both chambers of Congress soon to be under Republican control, seems particularly bold. The Republican Party traditionally prefers less regulation, aligning with Trump’s calls for minimal government interference in business.

This legislative push is especially daring given the committee’s pressing agenda to confirm as many federal judges as possible before the end of the congressional session. With limited days left before the holiday recess, this move underscores the Democrats’ urgency to maximize their influence while they still can.

Conclusion

As of November 2024, the Credit Card Competition Act has not been enacted. Senator Durbin continues to advocate for its passage, highlighting the need for competition within the credit card market to protect consumers and small businesses from high fees. The bill remains a topic of debate in Congress, with ongoing discussions about its potential impact on the financial industry and consumers.

Senator Dick Durbin credit card reform proposal through the Credit Card Competition Act represents a significant effort to introduce competition into a market dominated by a few major players. While the legislation faces challenges, its proponents argue it could lead to lower fees and benefits for merchants and consumers. The act’s future will depend on legislative negotiations and the balance between promoting competition and preserving consumer benefits.