What You Need to Know About the Credit Card Competition Act of 2022

It's a bill that could benefit you.

Many consumers use credit cards on a regular basis. Some fall back on their credit cards to cover emergency expenses.

Credit cards can work to consumers' benefit when they're able to pay their balances in full. But even when consumers don't carry balances forward and therefore aren't charged interest, they can still lose out in the form of credit card processing fees.

Processing fees aren't charged to consumers directly. Rather, they're the fees merchants are required to pay to accept a credit card. 

Recent Ascent research found that total credit card processing fees for merchants range from 1.15% + $0.05 to 3.15% + $0.10 in interchange fees plus an additional 0.14% to 0.17% in assessment fees. And for small businesses, those fees can be brutal.

In fact, these days, so many businesses are struggling to cover the cost of credit card processing fees that they're passing that cost onto customers in one way or another. It's common to walk into a restaurant, for example, and see a surcharge notice posted for credit card transactions due to those hefty fees. Or, businesses might bake in those fees by raising prices.

Compounding the issue is that Visa and Mastercard -- two major players that dominate the credit card industry -- have increased their fees in 2022. But a new bill is seeking to increase competition in the credit card processing network market -- and ease the burden of fees for businesses and consumers alike.

Introducing the Credit Card Competition Act of 2022

It's estimated that Visa and Mastercard account for around 83% of general-purpose credit cards. And in 2021, they charged a total of $77.48 billion in merchant fees. Those fees included interchange or swipe fees (which Visa and Mastercard compel merchants to pay to issuing banks), as well as network fees that Visa and Mastercard require merchants to pay to them directly.

These fees aren't just a problem for businesses. They're also passed to consumers in one way or another. 

The Credit Card Competition Act seeks to allow credit card transactions to be routed through a wider range of networks, thereby increasing competition in that space. The result? Lower swipe fees for merchants -- and lower costs for consumers.

The upside of the Credit Card Competition Act

According to Leon Buck, VP, Government Relations, Banking and Financial Services at the National Retail Federation, "Swipe fees are most merchants’ highest cost after labor and drive up prices paid by consumers by hundreds of dollars a year. This has always been the case, but these fees are particularly onerous during a time of high inflation when consumers can least afford the added cost."

Worse yet, says Buck, "Small businesses are hit the hardest, and the situation has become untenable as the use of credit cards has increased." And so regulating those fees is essential given the burden they place on smaller operations and consumers alike. 

Christine Pollack, Vice President, Government Relations at The Food Industry Association concurs. She insists that credit card processing fees are hurting grocers across the country.

"The one area that grocers have no ability to negotiate on is with Visa and Mastercard on how much it costs us to use these card networks to accept this form of payment from our customers," she says. And all told, she says, hidden processing fees cost the average U.S. family $900 a year. Adding regulations to lower those fees could ease that burden on consumers, especially at a time when inflation is soaring. 

Doug Kantor, Chief Counsel at the National Association of Convenience Stores, says that regulating the processing side of the credit card industry could benefit the economy on a whole. "Credit card routing competition would reduce swipe fees by $11 billion or more annually," he insists. "When customers have more money, they are more likely to spend it and merchants as well as consumers benefit."

The downside of the Credit Card Competition Act

But there's a flipside to the Credit Card Competition Act consumers should know about. According to Greg Mesack, Senior Vice President of Government Affairs at the National Association of Federally-Insured Credit Unions (NAFCU), opening up the credit card routing space could actually end up hurting consumers. 

If the new bill is passed, he explains, credit card transactions could then be routed according to a given retailer's preferences. "This means consumers lose autonomy when selecting the network option that provides the best security and, instead, allows retailers to bypass the consumer’s choice and opt for the cheapest network, which could lack technical maturity." Given that data security is already a big issue within the credit card industry, that's a valid concern.

Also, Mesack insists that the Credit Card Competition Act would indirectly serve as a form of government price control. "Financial institutions, including credit unions, would see a reduction of interchange revenue," he explains. "This revenue is crucial for credit unions as they work toward their mission of providing low-cost and sometimes free products and services to their members."

Mesack also worries that a decrease in revenue from processing fees might compel credit card issuers to scale back their reward programs. Consumers could lose out big time if that were to happen.

A complicated issue

There's no question that credit card processing fees are costly for businesses and consumers. But is the Credit Card Competition Act's proposal the right solution? Clearly, that's up for debate, and it will be interesting to see whether the bill gains traction or not.