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Legislative Notes

Consumers bear cost when government regulates more

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The Credit Card Competition Act has emerged as a controversial bill that Congress is expected to take up early this year.  Under the guise of increasing competition in the credit card market, this legislation presents some serious threats to small businesses and credit card users.  As is so often the case in Washington DC, a harmless-sounding title to a bill can be used to cover for hazardous details.

Competition is a good thing, at least when it emerges spontaneously in a free market.  “Competition” imposed by government mandate and enforced by unelected bureaucrats is a different thing altogether.  The former provides choices for consumers signaled by prices and leads to innovation and lowered costs.  The latter picks winners and losers based on who lobbies government the hardest, limits innovation, and usually increases costs.

In this case, the Credit Card Competition Act is being pushed by mega-retailers like Walmart and Amazon.  They want government-imposed “competition” in credit card networks by adding new regulations on interchange fees and routing mandates on credit card transactions so that they can pad their bottom line.  New research from the University of Miami found that these large retailers are expected to see their profits increase by about $3 billion as a result of this bill, but small businesses are not expected to see little to no savings. 

These new regulations are modeled off of the controversial “Durbin amendment” that imposed similar mandates on debit card transactions in 2010.  The Durbin amendment drove up costs for small banks, resulting in higher banking fees and reduced services, like eliminating free checking accounts.

We should expect a similar result if the Credit Card Competition Act is enacted.  In 2021, economists estimated that adding Durbin-style regulations to credit cards could cause community banks and credit unions to lose about $5 to $10 billion in revenue a year.  Our small banks in Montana would lose the revenue they use to fund services like free credit cards and fraud protection programs.  They could be forced to raise fees and get rid of free credit cards and cut back on rewards programs, which would harm small businesses and consumers. 

Small businesses would face additional challenges if this bill is enacted.  Adapting to multiple networks means navigating additional administrative and technical complexities.  This not only translates to increased operational costs but also diverts resources from other critical areas of business.  And handling credit card fraud is an increasing burden that would only be made worse by stretching the problem across multiple new and likely less safe card networks.  There’s also a significant concern that the costs associated with implementing and supporting multiple networks will be passed on to consumers.  

Furthermore, the bill could disrupt the current balance in the credit card market, potentially leading to instability.  The established system has functioned effectively for years. Imposing drastic changes by bureaucratic mandate in a well-functioning system requires cautious deliberation to avoid unintended negative consequences.

Most of us are predisposed to support competition in markets.  But it’s important to make the distinction between competition that arises when economic actors are free to engage in the market, and the type of “competition” manufactured in smoke-filled rooms in Washington.

Rep. Greg Oblander represents House District 40 north of Billings.  He serves on the House Business and Labor Committee.

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