Sen. Dick Durbin is poised to introduce legislation that would take another swipe at credit card giants Visa and Mastercard by mandating a minimum number of competitive networks be available for routing credit card payments.

The bill from Durbin, who has long crusaded against what he calls a duopoly, would require that there be at least one card network competitor to the two heavyweights available to merchants for routing any credit card transaction. Visa and Mastercard are the biggest credit card network companies, with smaller routing rivals that include NYCE, Star and Shazam.

The proposed law, to be called the Credit Card Competition Act of 2022 according to a draft of the bill obtained by Payments Dive, echoes an amendment to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act that Durbin (D-IL) won a decade ago, requiring that competing networks be available to route debit card transactions. The Democratic lawmaker, who is also the second-highest ranking Democrat in the Senate, has long railed against what he calls the anti-competitive practices of the two big card companies.

A spokesperson for Durbin declined to comment Thursday, and noted the news that the senator has tested positive for COVID-19.

The prospective legislation has been in the offing for months, if not years, with Visa CEO Al Kelly himself referencing the threat of it earlier this year. The likelihood of the bill being introduced this week and details on its routing restrictions as well as the Republican co-sponsor, Sen. Roger Marshall (R-KS), were first reported on Wednesday by The Wall Street Journal.

Visa, the largest card network company, didn’t immediately respond to a request for comment. Mastercard CEO Michael Miebach told analysts on an earnings call Thursday that the company believes in competition, but noted Mastercard has invested “massive amounts” in safety and security, and will “look at the bill through that lens.” He also mentioned the company will invest time and effort in discussions on the legislation.

The legislation takes on not only the two top U.S. card network companies but also big bank card issuers like JPMorgan Chase and Capital One that profit from card interchange, or “swipe,” fees imposed on merchants. Still, there are powerful interests on the other side of the debate, too, namely retailer and merchant trade groups that have backed Durbin and other legislators in their efforts to curtail fees. 

This latest amendment to the Electronic Fund Transfer Act would only apply to those bank card issuers with more than $100 billion in assets, the draft showed. It would also designate the Federal Reserve as the overseer of new regulations for credit routing.

By contrast, the law regarding debit transactions a decade ago, aptly named the Durbin Amendment, imposed a cap on debit fees, but the current proposal makes no such move with respect to credit fees (The debit fee cap only affected bank card issuers with more than $10 billion in assets).

This time around, Durbin is adding more parameters with respect to how the credit routing provisions will be enforced. Those clauses seem directed at avoiding the types of shortcomings that his camp argues has let the card networks circumvent the existing debit routing rules.

Indeed, the Federal Reserve said last year that it would examine whether the debit routing regulations were being followed in all situations, particularly in the case of e-commerce transactions. That central bank move followed mounting pressure from merchant and retail groups to revisit the issue of enforcement. 

The latest legislative proposal in the offing would ban credit card companies from pressuring merchants to use a particular network to satisfy security technology requirements or imposing penalties if they don’t meet quotas for a particular network.

Durbin is revving up his campaign against the card networks after President Joe Biden called for increased enforcement of antitrust laws last year, suggesting there is a need to root out anticompetitive practices among U.S. companies. With a Democrat in the White House and control of Congress, Durbin and like-minded Congress members, such as Rep. Peter Welch (D-VT), likely see an opportune moment to renew their challenge to Visa and Mastercard.

Earlier this year, Durbin convened a hearing of the Judiciary Committee, which he chairs, to air his grievances about April fee increases imposed on merchants and retailers by Visa and Mastercard and to hear from merchant groups, consumer advocates and other interested parties on the topic. Durbin may also be familiar with complaints from smaller rivals like Discover Financial Services, which is based in his home state. 

Doug Kantor, general counsel for the National Association of Convenience Stores, testified at the hearing in support of merchant efforts to push back against interchange fees. In a Wednesday interview, he said the coming bill was never envisioned as a vehicle to create a cap on credit fees as the Durbin Amendment did for debit, but he acknowledges the legislation is the product of compromise.

Kantor, also an executive member of the Merchants Payments Coalition, said he believes the bill will have “broad bipartisan support” from Congress members, given its reliance on competition to drive fees lower. The MPC on Thursday tweeted this statement: The “bill brings badly needed competition to soaring #creditcard #swipefees.”

“It’s very hard, even for the credit card industry, to object to having a basic level of competition, just like every other business has to deal with,” Kantor said of the new legislation.

It’s not as hard as he may think. Jeff Tassey, who is chairman of the board for the Electronic Payments Coalition, sees no good coming from another law restricting card companies’ businesses. His payments industry contingent argues that it’s mainly big retailers who benefit from lower interchange fees, not the small merchants that Durbin champions. On the contrary, the restrictions pit small-town merchants against their community banks, he said in an interview on Wednesday.

The routing restrictions would do “immense damage to our global electronic payments networks at a time when we really don’t need more economic problems,” Tassey said regarding the prospective legislation. That’s true even if it only pertains to big banks because the smaller ones are affected as well, he said.

Tassey said his organization will take seriously its job of educating Congress members about the negative impact the bill would have.

When the Fed asked for public comment last year on its proposal for clarifying the debit routing rules, it got an earful. More than 500 comments were filed with the central bank, espousing the pros and cons of the routing requirements. Now, nearly a year after the deadline for those comments, the central bank has yet to make a decision on its proposal.

Given the contentiousness of the issue, Durbin’s bill may be subject to a similarly long deliberative process.

By Lynne Marek on July 28, 2022
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