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Colorado consumers could kiss credit card rewards goodbye if Durbin bill passes
The banking industry is sounding the alarm to the outdoor recreation and travel industries about a proposed U.S. Senate bill that credit card companies warn will strip away awards programs, reduce network security, and potentially impact Colorado tourism.
Proponents of the bill argue it’s needed by small businesses to cut down on runaway “swipe fees” paid to banks and credit card companies every time customers make purchases.
Introduced last summer by Democrat Dick Durbin of Illinois and Republican Roger Marshall of Kansas, SB1838 – the Credit Card Competition Act – would require competition in the very limited field of credit card processing. But opponents say the bill is loaded with unintended consequences.
The CCC would actually amend Durbin’s Electronic Funds Transfer Act, which regulates debit cards and was championed by the Illinois senator years ago. However, electronic payment advocates say the bill unfairly targets the big two of Visa and Mastercard by requiring a competing, unaffiliated routing network, while excluding American Express and Discover.
Opponents of the bill say debit card routing’s different than credit card routing because there was already a regional affiliation of ATM networks that existed when Durbin’s original debit-card routing law went into effect. There’s no alternative network, or rail, they argue, for Visa and Mastercard to run on.
Currently, when customers swipe their credit card, the merchant pays on average about 2.2% in swipe fees – an industry standard for the past seven or eight years. Of that percentage, some of it goes to the bank that issued the card, some of it goes to the processor that processes the payment, and some of it goes to Visa or Mastercard.
“These fees are used for a variety of things ranging from funding rewards programs, all the way to reinvesting back in the security of the network,” said Nick Simpson of the Electronic Payments Coalition. “And if this bill passes, that rate is going to go to this unaffiliated, or third-party network, that’s untested.
“You don’t know what the security’s like on the network, how much has been invested in it, and the bank that issued the card would receive less interchange. So theoretically the funding source for a lot of these programs would be reduced or disappear completely,” Simpson said, adding that would be bad for Colorado mountain towns.
“One of the issues that would impact a lot of communities would be these travel rewards,” Simpson said. “Airlines for America did a study at the end of last year on co-branded airline cards — the cards that have the airlines specifically on them — and they found that Colorado, for example, is the number four travel destination for airline co-branded cards.”
Durbin, in a press release last fall, said post-COVID inflation and skyrocketing prices for consumer goods has put a target on credit card swipe fees.
“American consumers today are concerned about inflation and the high prices of groceries and gas. What they may not know is that the fees charged by Visa and Mastercard when they use their credit card, known as swipe fees, are adding to this problem,” Durbin said.
“Merchants have no choice but to accept the outrageous fees if they want to accept credit cards used by their customers. Our bipartisan legislation, which has support from a wide range of small business owners, would inject real competition in the credit card market. It is long overdue for Congress to break up the sweetheart deal that Visa, Mastercard, and the big banks enjoy.”
But Simpson said it’s actually the recovery from the pandemic and the demand for products and services that has merchants seeing an increased volume in swipe fees, and he argues it’s simply not worth the risk economically to mess with the swipe-fee system and do away with rewards programs.
“There are almost 720,000 passengers that fly to Colorado on co-branded airline cards on these reward program points,” said Simpson, who’s based in Washington, D.C. “And that’s independent of just a regular rewards card that’s issued. So, I have a rewards card that’s not affiliated with an airline, but I recently used those points to buy my tickets to Telluride.”
Marshall, also in a press release last fall, says it’s simply a matter of small businesses being hurt by big banking.
“I won’t stand for these massive, wealthy corporations price-gouging small businesses at every turn. Visa and Mastercard’s duopolistic, heavy-handed market practices have disproportionately hurt American families and small businesses for far too long. The credit card market is broken, and we have a solution to fix it,” Marshall said of the CCC bill.
However, a wide variety of advocacy organizations, including the U.S. Tourism Economy Alliance are pushing back on the bill. And it’s all about rewards points, Simpson said.
“So, theoretically the funding source for a lot of these [reward] programs would be reduced or disappear completely,” Simpson said. “So rewards would go down, but also it also calls into question what would happen with the security of the network, what would happen with the acceptance of the cards. There are just a lot of unknowns in this.”
David O. Williams
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