Dick Durbin is coming for your credit card rewards

Big-box retailers will stop at nothing to protect their massive profits, maintain their economic power and bolster their political leverage. The latest ploy to accomplish this incessant obsession: killing America’s credit cards.

The large big-box retailers in the country are rallying dozens of big-box behemoths, global fast-food chains and convenience store juggernauts to ram through new government mandates for credit cards. These retail giants formed an alliance with a few lawmakers to upend the payments system as we know it, with disastrous consequences for Main Street financial institutions and consumers alike.

The worst part about it is, we’ve seen this story before.

When Congress enacted legislation to regulate interchange (the nominal fee that retailers pay to process credit or debit card transactions), critical resources were taken away from small financial institutions — resources local banks and credit unions use to provide consumers with safe, affordable financial products. Despite reports from multiple nonpartisan government organizations including the Federal Reserve and the GAO showing that regulatory intervention in free-market operations of payment systems ultimately results in consumer harm (not price savings), lawmakers trudge ahead to ensure that history repeats itself and Main Street loses. 

SOME CONSUMERS USING CREDIT CARD REWARDS TO PAY FOR ESSENTIALS AMID HIGH INFLATION

The Backstory

Following enactment of the so-called Durbin Amendment in 2010, legislation passed as part of the Dodd-Frank Act that created new government price controls and regulations on debit card transactions, big-box retailers pocketed a multibillion-dollar wealth transfer on the backs of consumers, small businesses and community and regional banks. Meanwhile, the cost of banking services went up for millions of average consumers — the availability of free checking accounts decreased by 40 percent, debit card rewards programs evaporated and a million Americans lost access to the mainstream banking system altogether. 

For community and regional banks like the ones I represent as head of the Florida Bankers Association, the Durbin Amendment generated reams of new government red tape, increasing compliance burdens and wiping out critical revenue for everything from underwriting new applications to expanding access to free and low fee checking products.

Adding insult to injury, the cost reductions big-box merchants promised when they were lobbying for debit card regulations never materialized. In fact, 98 percent of retailers either failed to reduce prices like they said they would or actually raised them (77.2 percent stayed the same, 21.6 percent increased). 

The Credit Card Competition Act 

Fast-forward 12 years and the big-box lobbyists and their leftist champions are at it again — this time pushing to expand the 2010 debit regulations to credit cards. Democratic Sen. Dick Durbin of Illinois, namesake of the original Durbin Amendment, joined this time around by Republican Sen. Roger Marshall of Kansas are partnering with the big-box retailers to deliver another massive handout to big-box chain stores at the expense of community and regional banks and consumers.

The deceptively named Credit Card Competition Act purports to increase competition in the credit card industry. In reality, it would do just the opposite. For one, it would effectively eliminate consumer choice by allowing retail chains to route their customers’ transactions over the cheapest credit card network regardless of security capabilities or rewards offerings. In a free market economy, customers select credit cards based on a range of factors including the benefits and the protections they offer. And they assume those benefits and protections will be honored every time they use their credit card to make a purchase. But while that is the case today, the Durbin/big-box retailers scheme would allow retailers to circumvent their customers’ preferred networks — the ones to which their card rewards, benefits and security protections are attached — to select the least expensive, and likely least secure network.

The result would be an almost guaranteed increase in credit card fraud, a nightmare for consumers and community banks alike. And the rewards consumers love and rely on for everything from cash back to travel perks? Gone. The vast majority of the interchange revenue banks take in goes back into the pockets of consumers in the form of rewards, so curtailing this revenue would almost certainly spell the end of rewards programs as we know them.

What Sen. Durbin conveniently forgets is when a consumer on Main Street experiences a fraud on his/her bank account from a purchase made at a big-box retailer, the consumer does not call the retailer to fix the fraud and have the funds redeposited into their account. The bank is the one who will restore the funds to the consumer, not the big-box retailer.

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Retailer profits are now near their highest levels since World War II. At a time when these merchants are raising prices on American families above the real rate of inflation, big-box chains are looking for yet another government handout. Worse yet, they’re now attempting to sneak this cynical proposal into the National Defense Authorization Act, must-pass legislation intended to support national defense and military spending. This is the last place an amendment boosting the bottom lines of Walmart and Amazon belongs. 

If big-box retailers really wanted to help veterans and service members, they could start by committing to keeping their prices in line with the real rate of inflation. Instead, they’re attempting to pickpocket military families’ credit card rewards while weakening data security for all of us. American families deserve better, and so does Main Street and America’s community and regional banks.

Alex Sanchez is president and CEO of the Florida Bankers Association, and served on the EXIM Bank Advisory Committee.

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