The Credit Card Competition Act is no star for the NDAA Christmas Tree

By Jake Cooke, writer for The Credit Union Connection

“Swipe fees are the second highest operating cost, on average, for these [retail stores]. Only labor is a higher cost.” That according to Doug Kantor, general counsel of the National Association of Convenience Stores. 

To combat interchange fees on merchants, which are intended to cover the cost and risk of fraud that card issuers like credit unions incur, Sen. Dick Durban (D-Ill.) and Sen. Roger Marshall (R-Kan.) introduced the Credit Card Competition Act. In a ploy to ramrod it through Congress, the legislation has been attached as an amendment to the National Defense Authorization Act. The NDAA is a must-pass bill that funds the military and more, which is why it’s being used a ‘Christmas tree’ on which to hang ‘ornaments,’ such as the CCCA. CCCA supporters argue that increasing competition would result in lower costs for retailers, which, in theory, retailers would pass on to the consumer. (We all know that didn’t happen with the debit card interchange fee cap!)

To learn more about the CCCA, visit our advocacy page

However, substantial criticism has been leveled against this CCCA by credit unions and others. The loss of interchange revenue is likely to make financial institutions more risk-averse. 

Defense Credit Union Council takes a strong stance

Jason Stverak, chief advocacy officer, Defense Credit Union Council

“Our major concern for credit unions is the loss of access to credit for many individuals in this country,” said Jason Stverak, chief advocacy officer at the Defense Credit Union Council. By restricting financial institutions’ revenue, this bill could inadvertently be harmful to borrowers with less-well-established or negative credit histories, making it more challenging for them to get loans. 

Furthermore, there is no guarantee that savings will actually be passed along to consumers and will more likely be pocketed by retailers. In 2010, the Durbin amendment to the Dodd-Frank Act reduced debit card swipe fees. The results of this policy change were highly questionable, with no significant price decrease. Per a NerdWallet article, 21% of merchants raised prices following the implementation of this policy. 

The failure of this previous policy suggests that the Credit Card Competition Act is unlikely to achieve its stated goals. In fact, studies found that banks subjected to the Durbin amendment affecting debit cards were 35% less likely to offer free checking accounts. Additionally, to make up lost revenue from the debit card fees, banks hiked fees on interest and noninterest checking accounts, 17% and 20%, respectively. In addition, many experts project that this will result in a decrease or elimination of credit card reward programs.

“Contrary to its sponsors’ misguided claims, the adverse effects of this bill are clear: fewer options for consumers, greater threats to consumer data and privacy, weakened community banks and credit unions, and the disappearance of card rewards programs that families of all income levels use to stretch their budgets.” - DCUC

I wanna be your backdoor man

There are additional procedural qualms with the way the bill is being ushered forward. Stverak called the efforts to attach the provision to the NDAA “a back door attempt to push for the adoption of the Credit Card Competition Act or the Durbin-Marshall bill, of which DCUC and our members remain adamantly opposed to. We also remain opposed to the adoption of this frivolous amendment as part of the NDAA.” 

This treatment of so-called Christmas tree legislation has unfortunately become common practice in the U.S. Congress, wherein legislation that would not normally pass is tacked onto popular legislation by way of vague technicalities. In this instance, it is exploiting the fact that surcharges are imposed on credit card use on military bases as a justification for its attachment to the NDAA.

Overall, the attachment of the credit card act to the NDAA is problematic piece and will ultimately do more harm than good. As summarized in a statement from the Defense Credit Union Council, “The Durbin-Marshall bill accomplishes [uses] legislation to circumvent the free market to award private-sector contracts to a small handful of the sponsors’ favored payment networks to pad the profits of the largest e-commerce and multi-national retailers who are raising prices on American families far more than the real rate of inflation…Contrary to its sponsors’ misguided claims, the adverse effects of this bill are clear: fewer options for consumers, greater threats to consumer data and privacy, weakened community banks and credit unions, and the disappearance of card rewards programs that families of all income levels use to stretch their budgets.”