The National Association of Federally-Insured Credit Unions took a shot at legislation expected to impose new restrictions on credit card transaction processing before it’s even been introduced.
The association, which represents not-for-profit credit unions that provide services to 135 million consumers, told congressional leaders in a letter last week that a bill to require more networks be available for the processing of credit card transactions would be counterproductive. In its view, the legislation would benefit retailers and not consumers.
“This bill is unwarranted and represents a heavy-handed government intrusion into the credit card payments market that would hurt credit unions and consumers alike, while allowing the largest retailers to pocket significant cost savings,” the Feb. 24 letter said.
Their letter takes aim at the Credit Card Competition Act bill authored last year by Sen. Dick Durbin (D-IL), which he is expected to reintroduce this year after it failed to win passage in the most recent session of Congress. That bill mandated that merchants have access to card networks other than Visa and Mastercard for routing credit card transactions.
When asked for comment, Durbin’s spokesperson provided this comment from an unidentified congressional aide: “The Credit Card Competition Act would boost competition in a credit card industry dominated by Visa and Mastercard by directing card issuers with more than $100 billion in assets to choose a second network to enable on their credit cards besides Visa/Mastercard.”
“It is troubling that this letter is not transparent about NAFCU’s relationship with Mastercard as a ‘preferred partner for credit, debit, and prepaid branded products,’ as that is relevant information that may help explain NAFCU’s position on the bill,” the statement from the Judiciary Committee aide added.
Last year, the previously introduced Senate and House bills were both put forward by bipartisan sponsors, but they each failed to gain traction.
The bills would presumably have even dimmer chances of passage now that the House is under Republican control because Durbin, who is the Senate Majority whip for Democrats, has been the lead backer of the bill.
Nonetheless, he has proven to be a determined and strategic sponsor of such efforts over the years, seeking to inject competition into a card network industry he argues is dominated by Visa and Mastercard. More than a decade ago, he helped win congressional passage of the Durbin amendment to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which imposed new restrictions on the processing of debit transactions.
In its letter, NAFCU warned that passage of the latest bill putting curbs on the processing of credit card transactions would reduce its credit union members’ revenue from swipe fees and thereby limit loyalty programs, fraud protection and other benefits, like free checking, for customers. Without a portion of those interchange fees, they wouldn’t be able to offer the same services, they contend.
“Credit unions are committed to serving their members and, as such, must be able to make a reasonable return on payment card programs in order to continue to provide important consumer financial services, such as free checking accounts and member help lines when data breaches occur,” the letter said.
Meanwhile, associations representing merchants and retailers have backed the Durbin legislation and continue to do so. They argue that credit unions will be helped, not hurt, by Durbin’s proposal because it exempts financial institutions with less than $100 billion in assets, presumably giving the smaller players a lift in competing against their larger rivals.
“Only one credit union in the entire nation meets that test and the rest are exempt,” National Association of Convenience Stores General Counsel Doug Kantor said in response to the letter. “And, the exempt institutions would be more attractive to Visa and Mastercard – helping those small credit unions overcome the disadvantage they have in the market today.”
Trade groups representing those interests contend that the legislation would mainly impact the fee revenue streams flowing to Visa and Mastercard and the big bank card issuers. They also note that the processing of credit transactions are more regulated in other countries, but the financial institutions are still able to offer sufficient services in those markets.
“Security would be improved by the bill because competition improves not just prices but services throughout the U.S. economy,” said Kantor, who is also an executive committee member of the Merchants Payments Coalition.