Credit Card Rewards Would Be Collateral Damage in ‘Durbin 2.0’ Bill

A proposed bill co-authored by Sen. Dick Durbin aims to add competition to the 'duopoly' of Visa and Mastercard, but financial institutions say it would harm consumers by sharply reducing credit card loyalty programs.
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Along with Chris Dodd and Barney Frank, Sen. Dick Durbin is one of the most well-known elected officials when it comes to bank legislation. A new bill he is proposing could make him the target of rewards points-loving consumers.

Durbin is best known — at least in banking circles — for the so-called Durbin Amendment, which was part of the massive 2010 Dodd-Frank financial reform legislation. The amendment limited the amount of debit card swipe fees that banks and credit unions could receive from merchants.

Sen. Durbin, a Democrat from Illinois, and Kansas Sen. Roger Marshall, a Republican, are proposing a bill called the “Credit Card Competition Act of 2022.” According to information from Durbin’s office the bill aims to cut into the “duopoly” of Visa and Mastercard.

Durbin Redux:

A bi-partisan bill co-authored by Senators Dick Durbin and Roger Marshall seeks to limit the duopoly of Visa and Mastercard over interchange fees.

The act would allow the Federal Reserve to mandate that card-issuing banks of more than $100 billion in assets offer merchants a choice of at least two networks over which an electronic credit transaction can be processed.

“There are currently four U.S. credit card networks — Visa, Mastercard, American Express, and Discover,” reads an analysis from Financial Regulation News. “Visa and Mastercard act as agents for thousands of card-issuing banks and mandate the fees and terms that the banks receive from merchants for each transaction. The lawmakers say the merchants have effectively no leverage to negotiate fees and terms because they cannot risk losing access to all the consumers served by Visa’s and Mastercard’s member banks.”

Merchants Cite the Benefits of the Bill

Merchants are understandably enthusiastic about the proposed new bill. “Competition will result in lower fees, which have increasingly cut into the razor-thin profit margins of small businesses,” says Jeff Brabant, Senior Manager, Federal Government Relations, National Federation of Independent Business, in a press release. “NFIB members support increased competition for credit card processing networks.”

The Merchants Payments Coalition says the bill could save merchants $11 billion annually, while the National Association of Convenience Stores adds in a statement that “by requiring card networks to compete over who gets to process a transaction, exorbitant fees that have skyrocketed could finally be brought in touch with reality.”

Others, however, say the unintended consequences of the bill could mean a huge hit to consumers who use and rely on loyalty and rewards points.

Read More: Over 50 Credit Card Trends & Statistics for Banks in 2022

Major Threat to Consumer Rewards

The original Durbin amendment ultimately benefitted only large merchants and did not lead to any savings for consumers, argues Tony DeSanctis, a senior director at Cornerstone Advisors, in a blog about the proposed legislation.

Unpopular Consequence:

Some maintain Durbin 2.0 would cripple many credit card rewards programs.

“If we go back to pre-Durbin days, there were debit card rewards programs including airline miles and cash back offers at thousands of institutions,” writes DeSanctis. “Who got the benefit of those rewards? Banks, credit unions, Visa, MC? Nope. Consumers, for goodness’ sake. People could use their debit cards and earn rewards while spending their own money.”

Since the Durbin amendment went into effect, he continues, there are far fewer debit rewards programs available. Most financial institutions simply eliminated debit card rewards, and those that remain have greatly reduced benefits .

DeSanctis maintains many issuers would do the same for credit card rewards if the Credit Card Competition Act is passed. He cites a hypothetical credit card rewards program with 1.5% cash back on purchases: If the average Visa and MasterCard interchange fee is 1.85% that means much of that fee goes back to the consumer in the form of rewards. Lower interchange fees would lead to less rewards, he concludes.

From a banking perspective, DeSanctis writes, “Durbin 2.0 would be yet another hit to noninterest income, which helps fund the free multi-channel distribution system, insured deposits, real-time liquidity, and payment/fraud protections that banks deliver to consumers today.”

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A Boon to Big Merchants

Banks and credit unions, often at odds when it comes to legislation, are united in condemning the bill, saying it will only benefit big-box retailers and not small businesses.

A joint letter from a coalition made up of 51 state bankers associations and state credit union associations sent to Congress states that the proposed bill “will reduce the number of credit card issuers competing for consumers’ business, wring out the competitive differences among card products, decimate card rewards programs (such as airline miles) valued by American families and the tourism sector, and put the nation’s private-sector payments system under the micromanagement of the Federal Reserve Board.”

All for One:

Not normally on the same side legislatively, banks and credit unions are united in opposition to Durbin 2.0.

The letter continues by stating that “A credit card transaction is an extension of the bank or credit union’s own funds to its cardholder, who directs those newly lent funds to a merchant. It makes perfect sense that the bank and credit union that lends these funds should carefully and deliberately select the network over which their own funds flow to the merchant.”

Greg Mesack, Senior Vice President of Government Affairs for the National Association of Federally Insured Credit Unions, paints the bill as “nothing more than a one-sided attempt” by big box retailers to shift costs from themselves to consumers.

“Small businesses, the ones who are supposedly being helped by this legislation, will actually benefit the least,” adds Mesack. “All of this harm will be done in the name of fattening the bottom line of big box retailers.”

Jeff Tassey, chairman of the board for the Electronic Payments Coalition, told PaymentsDive that the bill would do “immense damage to our global electronic payments networks at a time when we really don’t need more economic problems.” He added that the proposed restrictions would pit small-town merchants against their local community banks.

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