Fighting Interchange Legislation—Again

Greg Mesack, NAFCU SVP of Government Affairs

Everything old is new again.” This quote has been attributed to several different people, including Winston Churchill and Mark Twain, but no matter who first said it, the sentiment is real for credit unions during the 2023 legislative session.

NAFCU has joined with several other financial services trade organizations to educate legislators once again about the flaws in the Credit Card Competition Act (CCCA) of 2023—or, more appropriately, the Big-Box Bailout—that was reintroduced in both the Senate and House in June. Lawmakers are seeking to extend the 2010 Durbin Amendment, which set new routing requirements on debit card transactions to lower interchange rates, to include credit card transactions. This is essentially the same legislation that NAFCU was able to successfully keep from moving forward last year.

The combination of credit union, community bank and other financial services trade organizations working tirelessly to prevent this legislation from passing is a testament to the importance of the issue for those of us who advocate for the financial well-being of all Americans.

The NAFCU Government Affairs team has been aggressively setting meetings with members of the Senate and House to let them know why this legislation is bad for the everyday consumer. Credit unions are proud that they offer entry-level access to members with free checking accounts, free credit cards that provide a 30-day unsecured loan for emergencies, and robust rewards programs. The CCCA is designed to lower rates for merchants and retailers with no regard to what happens to working class communities.

The retail industry is suggesting an anti-trust consideration as support for the legislation, but this is a dubious argument at best. There is competition among payment networks for credit card transactions, allowing merchants to choose to accept or not accept different payment methods including Visa, Mastercard, Discover, American Express, Square and PayPal based on interchange rate fees. Consumers also have a variety of options to choose cards and networks based on their trust and relationship with the issuing organization, rewards and benefits offered, and knowledge that their data is secure and their privacy is protected.

Allowing retailers to dictate a processing network based on lowest cost regardless of consumer preferences exposes credit union members to potentially less secure networks, and it also reduces a non-interest stream of revenue for credit unions. Not only do these funds allow credit unions to reinvest in systems to protect members, but they are also used to subsidize products such as free checking accounts, low fees and interest on loans, and financial wellness programs. These are all key offerings by credit unions to community members who benefit most from access to a financial institution.

The bill limits these new requirements to only institutions over $100 billion in assets. Although the Durbin Amendment provided an exemption for institutions under $10 billion in assets, community banks and credit unions still suffered a 33% decrease in their interchange revenue. There is no way to limit one segment of the credit card ecosystem without affecting everyone else because the need to negotiate flows down to institutions of all sizes that must reduce interchange fees to avoid losing customers.

While merchants and retail groups maintain this legislation will lower prices for consumers, the reality, as demonstrated by the results of the Durbin Amendment, is that this is simply not true. The Federal Reserve Bank of Richmond found that after the Durbin Amendment was implemented, 98.8% of merchants failed to pass savings realized from debit regulation on to consumers, and over 20% actually increased their prices. Big-box retailers support this bill because it requires banks and credit unions to route credit card transactions to the cheapest network while lining their own pockets.

Based on the opinions of individuals involved in the Senate Banking Committee and the House Financial Committee, I don’t believe the legislation will pass this year, but we cannot assume anything. The retail lobby is persistent and powerful, so we must continue to share our message.

The NAFCU Government Affairs team will continue to meet with and educate legislators and their staff, but we need our members to bolster these efforts. Credit unions are the best messenger. Let your lawmakers know how the CCCA would affect your members—their constituents. Contact your lawmakers via the association’s Grassroots Action Center and share a statement that can be used with media, members of Congress and others to oppose this bad policy.