Credit card rewards withdrawal law is set to pass through Congress

Last month, we reported on a proposed legislation that could expand the world of credit card rewards. At the time, the Credit Card Competition Act of 2022 seemed to be going nowhere. Despite being referred to the Senate Committee on Banking, Housing and Urban Affairs, no hearings have been scheduled.

That’s all changed.

Now, its co-sponsors – Senators Dick Durbin, D-Ill. And Senators Roger Marshall, R., Kan. – used a trick to circumvent the usual legislative process and potentially speed the passage of the bill. In fact, it’s scheduled for a Senate hearing next week, and since it’s now attached to a defense spending bill, it’s poised to race through Congress.

Durbin used a similar tactic in 2010 to secure passage of what would be known as the Durbin Amendment to the Dodd-Frank financial reform package. That amendment effectively eliminated debit card rewards, and it is feared that such an approach will have a similar impact on the credit card industry this time around.

And senators are using veterans as cover to push the bill through.

Here’s what we know about these innovative efforts that can fundamentally change the credit cards in your wallet.

Overview of the proposed law

Whenever you swipe your credit card to make a purchase, the transaction is routed through a payment network – like Visa or Mastercard. In exchange for the secure processing of said purchase, the seller will exchange fee (also known as a swipe fee), usually calculated as a percentage of the total purchase price (although the exact amount can vary depending on the card, the type of transaction, and other factors).

Part of this fee goes to the payment network to cover the transaction processing costs, and the other part goes to your card issuer – for example, Chase or Capital One – to cover the cost loan.

Read more: What is the difference between a credit card network and an issuer?

True to its name, the Credit Card Competition Act of 2022 seeks to foster more competition in the industry by forcing banks to work with at least one alternative payment network in addition to Visa and Mastercard.

Durbin and Marshall believe that implementing this regulation will allow newer (cheaper) alternatives to compete with established players. Merchants will likely choose the payment network with the lowest cost – and then theoretically pass those savings on to customers in the form of lower prices.

However, history indicates that this probably won’t happen.

In the years following Dodd-Frank’s departure, multiple sources assessed the impact of the Durbin Amendment – and found that consumer support was short-lived.

• A 2015 economic survey from Federal Reserve Bank of Richmond found that only 1.2% of sellers reduced the price due to Durbin Amendment – while more than 1/5 actually lift up surname.
• An article from George Mason University estimates that the amendment moves “$1 billion to $3 billion per year from low-income households to large retailers and their shareholders”.
• A study from University of Pennsylvania note that average monthly checking account fees have increased by more than 70% due to the Durbin Amendment.

The unintended consequences of imposing the same rules on credit cards could mean higher prices for consumers.

As noted earlier, the Credit Card Competition Act of 2022 has now been added to the spending bill which will be up for discussion next week (October 11). Specifically, it is an amendment to the National Defense Authorization Act, an annual bill that falls under Congressional oversight over the defense budget. Credit card switching fees seem unrelated to defense spending, but in a Press ReleaseDurbin and Marshall linked the fee to the higher rates in the military commissions.

“Veterans are being charged extra for installment purchases because of these exorbitant fees,” says Durbin.

Marshall added that “it’s important for us to make sure those who have served and are serving this country are not being unfairly taken advantage of.”

However, not everyone sees the connection.

“This law has nothing to do with defense spending,” Jeff Tassey, chairman of the board of the Electronic Payments Coalition, said in a statement. statement posted online. “Senators Durbin and Marshall should immediately drop this effort to use America’s veterans to score government points distributed to big box retailers at everyone else’s expense.”

“A proposed government mandate would rob military families of credit card rewards and undermine data security,” said Rob Nichols, president and CEO of the American Bankers Association. their material.

The bill was initially introduced and forwarded to the committee, but its prospects for passage appear slim. Now, as an amendment to a larger spending bill instead of a standalone piece of legislation, the likelihood of it becoming law has been increased.

“This Trojan horse — which is trying to get the Walmart-Target-funded Credit Card Competition Act into the NDAA — proves that this bill cannot stand on its own,” Tassey said. “Using our nation’s veterans as pawns is an insidious political ploy that should be categorically rejected by Congressional lawmakers.”

The NDAA will be considered by the Senate starting October 11, though a full vote on the bill is unlikely until after the midterm elections.

The last time we covered this topic – included a feature in our weekly newsletter written by TPG founder Brian Kelly – we received many questions about what could be done. If you are concerned about the impact of this measure on your credit card, please write to your elected representatives.

You can find full details by visiting this page on Congress.gov. Just enter your home address, and the website will display your county’s elected representative and two senators from your state. Each person should have a direct link to contact them about your concerns about this amendment to the NDAA.

For more details on this proposed piece of legislation, please see Our comprehensive story from September 16.