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Congressional Research Service Questions the Benefits of the Credit Card Competition Act

The nonpartisan group issued a report, How the Credit Card Competition Act of 2023 Could Affect Consumers, Merchants, and Banks, which highlights potential issues for Congress. The Act would regulate interchange fees on credit cards by requiring certain credit card issuers with over $100 billion in assets to enable at least two credit card networks. The credit union system strongly opposes the legislation.

The report identifies five potential issues:

  1. The ultimate impact of routing restriction prohibitions is not certain. Even if an issuing bank ensures that cards can be routed over multiple networks, merchants would still want to choose the most popular ones, and consumers would still want cards that are accepted everywhere. Merchants are not incentivized to switch networks. It is unlikely a small business would be aware of a smaller network, and even if it did offer payment on that network, the odds that a bank would issue a card enabled for that exact network are relatively small.
  • It is unclear who would benefit. Banks argue that rewards programs may disappear if interchange revenue falls. Retailers can benefit from lower fees but might face higher fraud risks with weaker payment security. It is not clear whether retailers would pass interchange savings on to consumers.
  • Major networks may be less willing to invest as much in secure payment technologies, as part of the benefit would accrue to their competitors.
  • Large retailers could form their own payment network, tightening links between commerce and banking, potentially leading to conflicts of interest.
  • While banking agencies have regulatory authority, mechanisms to ensure bank compliance with the prohibitions are unclear.

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