Proposed Federal Legislation Threatens Security of Credit Card Payment Data; Will Increase Cost of Financial Services

Murray Williams

​The Credit Card Competition Act (CCCA), recently introduced in Congress, would significantly alter a credit card payment system that currently works for all parties involved, while raising costs and threatening data security for Iowa consumers.
 
The CCCA would make changes to how credit card payments are routed, requiring card issuers (banks and credit unions) to provide at least two networks over which a merchant can process a credit card transaction. Card issuers have the most at risk with these transactions (fraud exposure), so they should decide how the transaction is processed.  By giving merchants the choice, they will naturally select the least expensive option, which isn’t always the most secure for consumers’ data.
 
The chief sponsor of the Senate bill is Illinois Senator Dick Durbin, who passed similar legislation dealing with debit cards back in 2010. While the stated intent of the CCCA is to reduce costs for merchants, we know from “Durbin 1.0” in 2010 that it had the opposite effect.  A 2022 General Accounting Office (GAO) study cited Durbin 1.0 as among the top five laws and regulations most cited for the cost of basic banking services increasing and the availability of products like free checking accounts disappearing. While Durbin 1.0 reduced costs for merchants, according to a study conducted by the Richmond Federal Reserve, only 1% of merchants passed any savings on to consumers.
 
Interchange fees, which are only a fraction of a cent per dollar transacted, are the merchants’ contribution to help cover the significant costs of operating a real-time, electronic payment network.  Those costs include fraud prevention and fraudulent purchase protection that make consumers and merchants whole when bad actors attack.
 
When data breaches happen, credit unions and banks bear the cost while merchants have no financial responsibility. Further, merchants have opposed efforts in Congress that would require them to meet the same data security standards that credit unions, banks and insurance companies must comply with under federal law to safeguard consumers’ personal information.  Thus, despite the tremendous benefits afforded merchants from electronic payments, merchants are trying to reduce what they pay to support the electronic payment network while also opposing efforts to raise data security at their point-of-sale terminals.
 
“Iowans rely on credit cards to make life happen, from paying for groceries and school supplies to covering emergency car repairs or medical expenses,” said Murray Williams, President and CEO of the Iowa Credit Union League. “The proposed changes to the interchange process will uproot a payment ecosystem that offers robust security, fraud protection, and will reduce access to credit for Iowans that often have the most difficulty accessing it.”
 
According to a recent poll from the Credit Union National Association, reduced interchange rates would inhibit credit unions’ ability to offer credit cards:

• 73% of credit unions nationally estimate they would have to raise credit card rates
• 61% of credit unions nationally estimate they would have to implement or raise the credit card program fee
• 15% of credit unions nationally would have to reduce or eliminate their card program

 
For more information, visit https://electronicpaymentscoalition.org/resources/epc-explainer-why-congress-should-oppose-the-credit-card-competition-act-2/.

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