With proposals aimed at controlling merchants’ costs for accepting credit cards having re-emerged in Congress, research has been emerging on both sides of the issue this summer as advocates for sellers and card issuers compete to influence any eventual legislation.
The latest thrust appeared Monday with a research report arguing Congress should scrap the proposed Credit Card Competition Act and “significantly” raise the asset cap set out in the 12-year-old Durbin Amendment to the Dodd-Frank Act, which regulates debit card pricing.
The CCCA was reintroduced last month after failing to get a vote in the last session. It applies to financial institutions with $100 billion or more in assets and requires issuers to offer at least one network other than Mastercard or Visa in an effort to spur competition for merchants’ card payments.
But the latest report, issued by Cornerstone Advisors and sponsored by the Credit Union National Association and the American Association of Credit Union Leagues, argues the CCCA is likely to gut associated cardholder rewards and services as large card issuers wrestle with the law. With credit card businesses, which are typically standalone entities, “it’s a stretch to say, ‘we’ll just generate income elsewhere. There is no elsewhere,” says Glenn Grossman, director of research at Cornerstone and author of the report, “The True Impact of Interchange Regulation: How Government Price Controls Increase Consumer Costs and Reduce Security.” Issuers’ costs would also rise as they take on management of chargebacks stemming from more networks, he argues.
Issuers can’t expect to escape this result, Grossman argues. “Everyone will be impacted,” he says.
Grossman concedes that what he calls “Durbin 2.0” is very different from “Durbin 1.0,” the rules capping debit card interchange. “We don’t have a crystal ball,” he says. “But there are a lot of similarities” in the probable results.
The merchant lobby, on the other hand, see reports like the one from Cornerstone as a “rewrite” of history. “Moody’s reported in 2012 that merchants shielded their customers from higher prices due to debit reforms,” says Doug Kantor, general counsel at the National Association of Convenience Stores, in an email message to Digital Transactions News. “The data backs that up as merchant costs rose 9.4% in the years after debit reform but their prices to customers only went up 4.3%. In fact, grocery profit margins narrowed during those years.”
Kantor also dismisses the argument that reduced income from cards will force banks to slash services associated with credit cards. “The American Bankers Association itself announced a few years after debit reform that ‘free checking’ had hit an all-time high. While banks reduced ‘free checking’ during the financial crisis they caused, that was before debit reform ever went into effect,” he notes.
Still, the impact from the CCCA, while unpredictable in extent, is inevitable, Grossman argues. “We do know from the past what has happened,” he says, referring to the Durbin Amendment. “The impact will be felt.” How much impact? “We don’t have that clarity” at this point, he says.