Reducing Credit Card Processing Costs: Durbin’s Push for Legislative Change

The credit card landscape is undergoing potential transformations with the introduction of the Credit Card Competition Act by U.S. Sen. Dick Durbin. ¹ While Durbin emphasizes the positive impact on business costs and consumer prices, critics express concerns about the future of credit card rewards and airline miles.

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Addressing Credit Card Processing Costs

Durbin recently visited a bustling Chicago market to garner support for the Credit Card Competition Act, emphasizing its potential to lower business costs for retailers. The primary focus of the legislation is to reduce the customary "swipe fees", typically around 2% of the transaction amount that retailers pay for each credit card transaction. ²  "Every time you use one of these credit cards from Visa or MasterCard, put it in the machine, you're not only paying for what you're receiving, you're also paying a fee that the retailer has to add to the cost of the product they're selling," Durbin stated. ³

The Impact on Consumer Costs

According to Durbin, the envisioned changes would translate into reduced costs for retailers, potentially leading to more competitive pricing for consumers. The senator highlighted that the fees associated with credit card transactions are often passed on to customers, making products more expensive.

Mandated Choices for Payment Processing Networks

A key provision of the proposed legislation is the requirement for larger banks to provide merchants with a minimum of two choices for payment processing networks. Notably, Visa and MasterCard could only account for one of these options. This strategic move aims to offer retailers alternatives with lower processing fees.

Balancing Options for Merchants

By limiting the dominance of major credit card networks, the legislation aims to empower merchants with choices, fostering an environment where smaller credit card processing networks can compete. This, proponents argue, will lead to a more balanced and competitive landscape in the credit card processing industry.

Concerns Over Impact on Rewards Programs

Opponents of the Credit Card Competition Act express apprehension over the potential fallout for popular credit card rewards programs. The fear is that if the bill is enacted, the funding source for these programs – the processing fees – could diminish, leading to cutbacks or the elimination of rewards and perks for credit card users.

Fraud Protection Debate

Critics of the proposed legislation also raise concerns about the potential reduction in fraud protections for consumers with the adoption of cheaper processing networks. The debate surrounding the balance between affordable processing options and robust consumer protections remains a focal point in discussions about the bill.

Navigating the Landscape of High-Risk Merchant Processing

The proposed changes in credit card processing regulations also have implications for high-risk merchant accounts. Amid the ongoing discussions, businesses in sectors such as credit repair and CBD sales are closely monitoring developments to understand how the legislation might impact their payment processing options.

As the Credit Card Competition Act undergoes scrutiny and debate, its potential implications for credit card processing, merchant accounts, and payment gateways are central topics in the ongoing conversation about the future of the industry.

FOOTNOTES: 

1. "S.1838 - Credit Card Competition Act of 2023", Congress.gov, June 7,2023. Congress.gov
2. "What’s Going On With Credit Card Swipe Fees?", NACS, June 09, 2023. NACS
3. "Durbin pushes legislation to reduce credit card "swipe fees"; critics say rewards programs at risk", CBN NEWS, September 22, 2023.CBN News