Despite merchants’ persistent attacks on card fees, those tolls have an indomitable inertia that seems to suggest they aren’t shrinking anytime soon.
The fees, imposed by banks that issue cards and the card networks, consistently withstand the recriminations that restaurateurs, retailers and politicians spew at them.
Five years ago, it appeared that the fight between merchants and the card companies had perhaps reached a tipping point, with merchants gaining leverage by way of their congressional champion, Sen. Dick Durbin. But now, financial players have quietly regained ground.
Despite Durbin’s win against the card industry 16 years ago in the form of his namesake amendment, giving merchants a big win in de-escalating debit card fees, their follow-on credit card fight has fallen flat so far.
Durbin, a Democrat from Illinois, seems destined to retire from office next January without budging Congress on the Credit Card Competition Act proposal that he and Republican Sen. Roger Marshall of Kansas have steadfastly pressed for years on Capitol Hill. That’s despite repeated shout-outs for the legislation from President Donald Trump.
The bill aims to force banks that issue cards to make alternatives to the big card networks Visa and Mastercard available for processing card transactions when consumers swipe their cards, presumably creating more competition that would lower the fees. The legislation has attracted a few more sponsors lately, but hasn’t found a bigger bill to carry it across the finish line.
On the debit card fee front, merchants have also failed to make progress, even after no less than the Federal Reserve proposed to lower the federal cap on those card fees. That proposal was nearly three years ago, and hasn’t progressed since then.
It all comes down to money driving political sway, says Eric Cohen, who leads the merchant consulting firm Merchant Advocate.
“The power that the networks and the banks have is enormous,” Cohen said in an interview this week.
Fighting the fees in court hasn’t fared much better. Last year, lawyers for the banks and card networks entered into a court settlement with millions of merchants who sought recompense for years of what they called excessive card fees. A federal judge gave preliminary approval to the pact in June, with a hearing scheduled for later this year on final approval.
That agreement may end two decades of litigation without making merchants much happier. Some merchant proponents say the settlement falls short.
Meanwhile, consumers continue to favor credit and debit cards, regardless of how merchants feel about them. The cards have consistently been the first and second most popular forms of payments among U.S. consumers since 2020, according to an annual survey from the Federal Reserve. That’s partly thanks to the COVID-19 pandemic tainting cash.
But it’s also because U.S. consumers can’t get enough of their credit card loyalty points, which the merchant fees help fund. Merchants, in turn, can offer consumers the credit they crave for purchases by way of cards.
“This country loves rewards, which is a big part of interchange,” Cohen explained. “Our country loves to spend money we don't have, which means you have to cover losses with interchange fees.”
As long as points and credit remain staples for consumers, the fees will have staying power.
