One of the lessons my dad taught me as a child was the “law of unintended consequences,” which is that human actions – and government in particular – always have an impact. unforeseen or unintended. We saw this a decade ago with the Durbin Amendment from the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed after the Great Recession. It limits how much money banks can earn from debit transactions. They say this will be great for consumers; it is anything but.
Almost immediately, the debit card rewards disappeared — and who was hurt the most? Consumers with lower incomes and credit scores who may have difficulty getting credit card approvals.
And what about the price for consumers? A 2015 economic survey from the Federal Reserve Bank of Richmond found little evidence that merchants passed on their cost savings to consumers. Most respondents (77.2%) said they kept prices unchanged after the new regulation, while a sizable portion (21.6%) actually increased prices. Only 1.2% passed on lower prices to customers. With the Durbin Amendment, the cost savings go to the bottom line of shareholders and retailers, not consumers. And now, Senator Richard Durbin is trying to achieve the same thing, but on a much larger scale.
Many well-intentioned legislators tried to solve the problem, but ended up creating bigger problems. We see this with taxation — state legislators may want to increase revenue and raise taxes, but do not anticipate that companies and taxpayers will move to states with lower taxes . In the end, states lose jobs and collect less revenue.
What is the problem?
A law with very adverse consequences for lovers of points and rewards on credit cards is now being reintroduced on Capitol Hill. The Credit Card Competition Act of 2023 (“The Big Box Bill”) was proposed by two US senators — Richard Durbin, D-Ill., and Roger Marshall, R-Kan. — would be catastrophic for consumers, especially the millions of consumers who derive tremendous value from cash back rewards and travel when transacting with a credit card. The law, strongly supported by retail lobbying, will regulate the rates Visa and Mastercard charge retailers to process transactions on their networks.
Related: Explaining the Credit Card Competition Act and what it means for your credit card rewards
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What does that mean?
The law would allow big box retailers — such as Walmart and Target — to choose cheaper, less secure credit card processing networks, to disclose consumers’ personal information to overseas networks in China. States and Russia without regard to the value that consumers get from rewards and many other credit card benefits.
Simply put, it kills funding for credit card rewards programs and allows retailers to pocket the savings from lower exchange fees (also known as swiping fees). With lower fees charged, consumers lose out on rewards, purchase protection, and fraud protection while retailers add to their profits.
Retail lobbyists are trying to convince consumers that this will lead to lower prices; however, we know retailers won’t pass on those savings, because we know the impact of the Durbin Amendment and it’s a big damage to consumers.
This new act will also have spillover effects – credit card issuers, including credit unions and community banks, will no longer be able to fund programs and perks that all we are all familiar. It will take value away from consumers and put it in the pockets of retailers.
Another ripple effect could be higher airfares. Airlines like American Airlines and United Airlines, which derive huge amounts of revenue from their credit card partnerships, will need to offset that revenue elsewhere if their co-branded credit card rewards they disappeared. Where do you think they will go for more revenue? Higher airfares and fees are almost certain to occur.
bottom line
This law, if passed, would destroy our lucrative rewards ecosystem and it would take value out of consumers’ pockets to offset the profits of retail companies. If you like credit card points and rewards, learn more about the proposed law at Give my reward And contact your legislator to voice your concerns. There are a lot of big problems our government should address, but canceling credit card rewards so retailers can make more money shouldn’t be one of them.
