That’s the warning voiced by critics of the proposal. law It is intended to increase competition among credit card networks and make it cheaper for retailers to process credit card payments.
The bill was first introduced in June 2022 by Sen. Dick Durbin, D-Ill., and reintroduced this summer with new bipartisan support. Proponents of the bill, called the Credit Card Competition Act, say it addresses Visa-Mastercard V.
It helps companies monopolize and reduce processing costs, which in turn helps consumers’ wallets.
The proposed changes have drawn harsh criticism from airlines, travel companies and financial institutions, saying the bill would place unnecessary restrictions on payment processing and unintentionally eliminate many credit card perks and reward programs. It is claimed that this will happen. Millions of Americans use these programs to book travel plans, upgrade airline seats, and earn cash back on purchases.
Airlines have faced growing public opposition to the Credit Card Competition Act in recent weeks, with executives pointing to the bill’s potential impact on frequent flyer miles.
But could this bill really affect your flight miles and dining points? Here’s what you need to know.
What is the Credit Card Competition Act?
Credit card issuers make money in three main ways. One is interest and fees that are charged directly to the customer, and the other is an additional fee called an interchange fee, which is paid as a percentage of each transaction by the merchant where you use the card.
Stores, restaurants and other businesses sometimes charge customers payment processing fees to cover their costs, said Brian Kelly, founder of travel rewards website The Points Guy. In most cases, they just factor it into the cost of doing business.
The Credit Card Competition Act of 2023 addresses so-called swipe fees, where the dominance of the two largest credit card networks, Visa and Mastercard, gives businesses little choice but to pay the price they set for a swipe. They argue that this is creating a duopoly. Fee.
Visa said in a statement to MarketWatch that its “overall” exchange fees have remained flat for more than a decade. The company also said it had lowered interchange fees for the “vast majority of small businesses” in recent years, even as payment values more than doubled.
“Our industry has never been more competitive and there have never been more payment options for consumers and businesses,” Mastercard said in a statement shared with MarketWatch.
If passed, the bill would require the largest credit card issuers to offer at least two networks through which merchants can process credit card payments. At least one of these networks must not be Visa or Mastercard.
This competition leads to improved services and lower costs. summary the bill claims.
“If merchants want to accept the credit cards their customers use, they have no choice but to accept exorbitant fees,” Sen. Durbin wrote in a September paper. Press conference We are calling on Congress to pass the law. “It is long overdue for Congress to dismantle the sweetheart pact enjoyed by Visa, Mastercard, and the big banks.”
How can credit card competition laws affect credit card benefits?
Critics argue that the proposed network changes would cut into card issuers’ profits and reduce or completely eliminate benefits they offer customers.
“If credit card issuers earn less money, the benefits that consumers get in terms of rewards will have to change,” said Ed Mills, managing director and Washington policy analyst at Raymond James. He explains.
The airline industry has been especially critical.
United Airlines UAL,
Chief Executive Officer Scott Kirby said during the company’s Oct. 18 earnings call that the proposed legislation “would eliminate our benefits program.”
“It won’t exist anymore,” he said by phone. “I think that’s bad policy.”
in Interview with Bloombergdelta DAL,
CEO Ed Bastian said the bill would cause an “incredible” consumer backlash.
“These cards can no longer receive funds to invest in reward back opportunities,” he told the outlet. A Delta spokesperson said in an email to MarketWatch that Bastian was speaking about his knowledge of others in the industry and that the airline remains neutral on the law.
Airlines for America, an industry group representing major U.S. airlines such as Delta Air Lines, American Airlines, and Southwest LUV;
They argued that the law would threaten popular airline loyalty cards. The group is motionurged consumers to “get to the point” and write letters to members of Congress who oppose the bill.
“Loyalty cards create tremendous value for consumers,” the organization told MarketWatch in an emailed statement. Airlines for America said the proposed mandate would increase complexity and confusion for cardholders.
The Points Guy’s Kelly said changes to credit card rewards systems could be particularly difficult for airlines.
“Airlines make more money selling miles to banks (to distribute to cardholders) than they do flying planes,” he said. “If a consumer can no longer earn points, he or she will no longer use his airline credit card.”
In addition to operating paid sponsorships with financial service providers and other brands, The Points Guy earns commissions on credit card, hotel, and product referrals.
Kelly added that flight miles and dining points may not be the only benefits affected by the potential changes. Revenue from interchange fees also helps card issuers provide other services, such as extensive fraud coverage.
“Protection against fraud will be reduced and rewards will be reduced,” he said. “Consumers will be losing out, so stop it completely.”
Will credit card issuers actually scale back benefits?
Ian Katz, managing director at policy research institute Capital Alpha Partners, said it was difficult to predict how severely card issuers would cut benefits even if the bill were passed.
“If this were to happen, it could be a serious loss,” Katz said. “It is also true that it is not in the best interests of the organizations making these points to downplay the (potential) impact.”
“The airline industry, which makes billions of dollars each year on co-branded credit cards, has the luxury of pretending it has the best interests of hardworking Americans at heart,” Durbin said in a statement to MarketWatch. I wrote it in a sentence.
Durbin pointed out that the EU put strict limits on swipe fees in 2015, but credit card rewards programs didn’t disappear.But some banks actually did Benefits of scaling back After that decision. The UK banned swipe fees in 2017.
Supporters of the Credit Card Competition Act argue that even with cheaper payment networks, financial institutions would still use perks to market to and compete for customers. There is.
“Rewards are determined by the bank that issues the card, not the network that processes the transaction,” said Stephanie Mertz, chief administrative officer and general counsel at the National Retail Federation.
He said the airlines’ criticism of the bill was “a scare tactic to mislead Congress.”
“The revenue that banks stand to lose is only a fraction of the total swipe fee collections, and it’s a long way from ending the reward,” he said.
Will the Credit Card Competition Act become law?
Mills said the Credit Card Competition Act of 2023 is unlikely to pass this year.
“At this point, it’s unlikely,” he explained. “[Durbin]now has what appears to be a coalition government, but with four senators, it’s far short of the 60 needed to pass the controversial bill.”
And some members of Congress aren’t keen on taking a stand.
Katz added: “It pits the local merchants in the district against the local banks.” “There are quite a few members who probably don’t want to vote on this at all.”
Mills said there’s a good chance the swipe fee debate will resurface at some point, even if the current bill isn’t resolved.
“There are well-funded business interests on both sides of this debate, and there are literally billions of dollars at stake,” he said. “It’s something that never goes away.”
From the archive (June 2023): Visa and Mastercard stocks fall as Congress takes new aim at credit card fees