Issue #191: I'm not normally a competitive person

Hi y’all —

The Glums are generally not a competitive bunch…

…but our Bananagrams games are notoriously intense.

There’s a lot of shouting and sabotage. We have house rules and high standards. Being invited to play is a rite of passage for newcomers, but if you spell a word wrong — or, God forbid, try to sneak in a proper noun — we will eviscerate you.

The competition can be fun, but it often comes with consequences (re: the shouting). That’s true in the financial world, too.

Just look at the Credit Card Competition Act, a piece of legislation that’s been floating around lately. It has potential ramifications for credit card processors, banks and rewards programs, which has made it a pretty hot-button issue. Critics on both sides are talking about it constantly even though the proposal isn’t before Congress yet.

What’s going on with the Credit Card Competition Act? How would it affect everyday consumers?

Let's start at the beginning.

The Credit Card Competition Act was introduced by Sens. Dick Durbin, D-Ill., and Roger Marshall, R-Kan., last summer. Though it didn’t go anywhere, the legislators have indicated they’re gearing up to introduce it again soon.

The nitty gritty details of the bill are all about network access and credit card transactions. Basically, every time I use a credit card at a store or online, the bank that issued me that card charges the merchant a fee. This is called an interchange, or swipe, fee.

The amount of the fee is set by the card processor, like Visa or Mastercard. The merchants have no say in the matter because Visa and Mastercard dominate the networks over which the transactions are routed.

“It is as if there was a milk cartel [that said], ‘We’re going to tell all the grocery stores how much to charge for milk,’ and they all said, ‘Sure, great idea, we’ll go with that,’” says Doug Kantor, general counsel at the NACS, a trade association for convenience stores and gas stations.

The fees are hefty. According to a 2022 report from payments advisory firm CMSPI, U.S. credit card interchange fees are some of the highest in the world — 1.8% compared to 0.3% in the U.K.

To cope, Kantor says, merchants often pass the fees onto consumers like me in the form of inflated prices. (That’s also why some small businesses put those legally dubious signs by the register about credit card surcharges.)

The act aims to combat this by forbidding credit card issuers from restricting the number of networks on which transactions are processed. If passed, it would require banks to offer a second, smaller network the opportunity to compete for transactions alongside Visa and Mastercard.

Merchants could choose from them, in effect “decoupling who’s sponsoring the card with who’s getting the fees,” says Danielle Zanzalari, an assistant professor of economics at Seton Hall University.

The idea is that by injecting competition into the system, Visa and Mastercard would have to start lowering their prices in order to get business. Merchants would benefit, and then they would pass those savings along to customers. Cha-ching.

One estimate predicts that this would save merchants about $11 billion annually. “That’s super important to the retailers out there, but not a world-changing number for” banks and card issuers, Kantor says.

The drawbacks of the act depend on who you’re talking to. Zanzalari, for instance, warns of the security risk of opening transactions to smaller processors (“these bigger firms have been doing this for years and years,” she adds). And there’s no guarantee that merchants, who all of a sudden will be saving a ton of money, will actually pass those discounts onto shoppers like me.

But perhaps the most hotly debated consequence of the CCCA involves credit card rewards. If retailers are able to select which processor they want, the rationale goes, they’re likely to go for the cheaper option — and that could set off a chain reaction, hurting Visa’s and Mastercard’s profits. In turn, they'd start slashing their beloved points programs.

“If they’re not making as much money, they're not going to give out as lucrative of rewards,” Zanzalari says.

Advocates like Kantor push back against this mentality, pointing to the fact that Europe has capped its interchange fees on consumer credit cards with little consequence to points systems.

“People in Europe have rewards; they have airline miles. They get them; they use them,” Kantor says. “So we know other places with much lower fees still get rewards, and we will clearly still get rewards here.”

The Credit Card Competition Act takes aim at Visa and Mastercard by regulating interchange, or swipe, fees charged to retailers every time I use my credit card. There are pros, cons and potential effects on credit card rewards programs.

Durbin’s office tells me there’s no timeline for when he’ll introduce the legislation again. Until (and when) he does, everyone on all sides will be heated.

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The Writers Guild of America is striking for better pay and worker protections, and due to the way shows are filmed, one of the most immediate effects has shown up in late-night TV. Hosts Jimmy Fallon and Seth Meyers have both vowed to pay staffers out of their own pockets for a week. Solidarity!

See you next week.

P.S. What do you think about the Credit Card Competition Act? What’s your favorite TV show? How would you react if there were a bunch of bees on your plane? Send swipe fees to julia@money.com. Your Dolla Scholla holla may be featured in the next issue!

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