Dear Chairman Durbin and Ranking Member Graham:
We are writing to express our strong opposition to the Credit Card Competition Act (S. 1838 Durbin-Marshall bill) or any other expansion of the Durbin amendment.[1] Any legislative initiatives to expand the power of the federal government to intervene in the U.S. credit card market would not only harm our members, but also small businesses and consumers across the country.
We also want to share our deep disappointment with the committee’s decision to schedule a lame duck hearing promoting this misguided legislation without hearing testimony from a community bank or credit union. If the Committee’s goal is to educate lawmakers and the public, these financial institutions could detail the real harm CCCA will bring to the customers and communities they serve. They could have also explained how the bill fails to effectively exempt them from the bill’s requirements despite claims to the contrary.
Background
The Durbin amendment and subsequent rules issued by the Federal Reserve (Regulation II) imposed both a cap on debit card interchange fees and required debit cards issued in the U.S. to enable the use of at least two unaffiliated payment networks.[2] Amendments to Regulation II also applied the routing requirements to card-not-present transactions in addition to point-of-sale transactions.[3]
The negative repercussions of the Durbin amendment are still being felt nearly 15 years after it was signed into law. A 2022 report from the Government Accountability Office found that if the Durbin amendment “had not been implemented, 65 percent of noninterest checking accounts offered by covered banks would have been free.”[4] After the Durbin amendment went into effect, the Federal Reserve Bank of Richmond found 98 percent of merchants either raised prices or kept them the same—despite repeated promises from retailers that any savings would be passed on to consumers through lower prices.[5] The Federal Reserve Board has declined to sufficiently assess the consumer impact of its currently-proposed amendments to Regulation II, but recent research estimates that the proposal would raise the cost of checking account services to consumers by $1.3 to $2 billion a year, with low-balance consumers bearing a disproportionate amount of such costs.[6]
Imposing regulations on credit card interchange fees will lead to similar consumer harm. The Durbin-Marshall bill would expand the routing requirements imposed by the Durbin amendment to credit cards issued in the U.S. This will open the door to fraud, hamper rewards programs, and limit the allocation of credit to individuals and small businesses. This is why small community banks and credit unions in all 50 states have voiced their opposition to the Durbin-Marshall bill.[7]
These proposed mandates would impact every card-issuing financial institution in the country, even the community banks and credit unions its supporters claim are exempt. In reality, a change this monumental cannot be walled off by some legislative carve out. As we saw with the original Durbin Amendment, interchange revenue for supposedly exempt institutions declined by 30 percent[8], which makes it more difficult for these community banks and credit unions to serve their customers. That is why it is so unfortunate the Committee did not allow one of these institutions to testify.
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[1] The Durbin amendment was enacted as a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203).
[2] https://www.federalreserve.gov/paymentsystems/regii-about.htm.
[3] https://www.icba.org/newsroom/blogs/main-street-matters/2023/06/27/unpacking-the-path-to-instant-payments.
[4] https://www.gao.gov/assets/gao-22-104468.pdf.
[5] https://www.richmondfed.org/-
/media/richmondfedorg/publications/research/economic_quarterly/2014/q3/pdf/wang.pdf.
[6] Bourke, Nick, How Proposed Interchange Caps Will Affect Consumer Costs (January 24, 2024). Available at SSRN: https://ssrn.com/abstract=4705853 or http://dx.doi.org/10.2139/ssrn.4705853
[7] https://electronicpaymentscoalition.org/2024/01/03/every-credit-union-community-bank-in-america-opposes-the- durbin-marshall-credit-card-bill/?dclid=CPPjmaW714kDFTQ4iAkdXTMR_w.
[8] https://electronicpaymentscoalition.org/resources/what-exemption-community-banks-credit-unions-lose-under-the- durbin-amendment/
