This US act could change the way we use credit cards. Will it halt rewards programs?

Legislation introduced this summer could change the way we use credit cards.

It’s called the Credit Card Competition Act. Supporters say it would reduce excessive fees and enhance credit card competition. Opponents say consumers will lose out.

Here’s how it will affect your wallet.

What is the Credit Card Competition Act?

Right now, Visa and Mastercard run the world of credit cards. Combined, those two networks control more than 80% of the credit card market, NerdWallet reported. American Express and Discover are the other two major credit card networks.

The Credit Card Competition Act would require the largest banks that issue Visa and Mastercard credit cards to choose a second network for each card. Then, merchants could choose which network when processing a transaction.

“Credit card swipe fees inflate the prices that consumers pay for groceries and gas,” U.S. Sen. Dick Durbin, an Illinois Democrat, said in a June news release. “It’s time to inject real competition into the credit card network market, which is dominated by the Visa-Mastercard duopoly.”

In 2021, merchants paid $77.48 billion in fees. That includes interchange or swipe fees that merchants must pay to banks, plus network fees that go straight to Visa and Mastercard.

The legislation “would enhance credit card competition and choice in order to reduce excessive credit card fees,” according to a summary.

Those fees help fund credit card rewards, according to NerdWallet.

What do those opposed say?

Critics of the legislation say it would only benefit the largest retailers and that consumers wouldn’t see benefits with increased data safety or financial savings.

“It is reprehensible that at a time when hard-working Americans are already feeling the financial pinch from inflation, big box bullies are pushing for financial breaks that would risk both the data security and access to credit for consumers and small business owners,” said Jim Nussle, president and CEO of the Credit Union National Association, in a June 2023 statement. “This bill would allow these large merchants to use the cheapest credit card processing option, with no requirement to keep consumers’ data safe or return savings back to them.”

USA Today reported there are also fears it would reduce access to credit, burden smaller banks and effectively end credit card rewards.

What does history say?

We’re going back to 2010. That’s when the Durbin amendment, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, was passed. The amendment limited transaction fees merchants had to pay to issuers of debit cards, according to Investopedia.

The theory back then was the same: Consumers would benefit from savings the merchants would pass along.

But NerdWallet reported the amendment “didn’t have much, if any, effect on retail prices.” A Federal Reserve Bank of Richmond survey estimated 21% of merchants raised prices after the Durbin amendment. Plus, banks increased fees for checking accounts and debit card rewards programs declined.

What does it mean for you?

The Credit Card Competition Act has more bipartisan support in Congress this year after failing to make it into the final National Defense Authorization Act in 2022. So far, it has just been introduced in the Senate, with companion legislation also introduced in the House.

Credit card rewards might not disappear. NerdWallet reported that countries with lower interchange fees still have rewards. NerdWallet also recommended routinely going over the cards that you use to ensure what you’re using works for you.

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