Foundation for Economic Education: The Credit Card Competition Act declines to protect consumers

Thanks to sky-high inflation , credit card delinquency has risen this month to its highest rate in over 10 years. Rather than helping to ease prices, members of Congress are making credit cards even more complicated.

This summer, the Credit Card Competition Act was reintroduced to the Senate by its original advocate, Sen. Dick Durbin (D-IL). Unfortunately, even some Republicans have joined him on this big government, anti-market crusade, with Sens. Roger Marshall (R-KS) and J.D. Vance (R-OH) supporting the bill and Rep. Lance Gooden (R-TX) introducing companion legislation to the House of Representatives. The bills had bipartisan co-sponsors in both chambers.

The Credit Card Competition Act targets the roughly 30 banks with over $100 billion in assets each that issue Visa or Mastercard credit cards. Under the law, those banks would have to issue cards on at least one credit card network (such as American Express or Discover) outside the so-called Visa-Mastercard duopoly. The bill’s sponsors claim that these changes will bring competition to the credit card market, driving down the fees charged to retailers per swipe and passing those savings to consumers. If history is any indication, things won’t work out that way.

Durbin pushed a similar measure capping debit card fees in 2010. Despite the tough populist talk, that led to no savings for consumers but increased profits for big-box retailers. The Credit Card Competition Act will similarly put more money in the pockets of big corporations at the expense of consumers while compromising their security and protection from scammers.

In its haste to score political points, the bill prohibits card networks and issuing banks from requiring merchants to use stricter security measures preferred by Visa and Mastercard but not shared by their competitors. Ironically, this reducescompetition between the networks, leaving consumers with less secure payment systems as a result. It’s not the market leaders’ fault that their competition hasn’t caught up to their security measures. Other networks may feel incentivized to catch up to Visa and Mastercard if the matter is left up to market forces. Credit card fraud is the most common form of identity theft, with a 13% increase in 2022 from the prior year, and the so-called Credit Card Competition Act could only make this worse.

Legally , consumers’ maximum liability for fraudulent charges reported within two business days is $50, and $500 for cases reported 60 days after the statement for the month in which the charges occurred. Business and corporate cards have no legal maximum, meaning consumers theoretically can be on the hook for a scammer’s full purchase. However, all four major credit card networks (Visa, Mastercard, American Express, and Discover) guarantee zero liability for fraud to their customers as a perk. That means the expenses of credit card fraud fall on the networks themselves and issuing banks.

Hampering networks’ incentive to fight fraud now could lead to zero-liability perks going away in the future, leaving consumers to foot the bill on behalf of credit card thieves. With credit card scammers diversifying their tactics across in-person and online methods, the financial implications of fraud could be an enormous risk for the 84% of adults who have at least one credit card.

By trying to solve a problem that doesn't exist, the misleadingly named Credit Card Competition Act is poised to create new problems. The act disincentivizes innovation in credit card security, hampering competition while forcing consumers to accept the lowest common denominator in fighting fraud. And if history is any guide, the bill will boost profits for big corporations without any savings for credit card users. For all the populist rhetoric of some of the bill’s proponents, the Credit Card Competition Act declines to provide any real benefits except to the retail world’s biggest players.