Credit Unions attack the Credit Card Competition Act

The National Association of Federally Insured Credit Unions (NAFCU) is the latest organization declaring its opposition to the proposed Credit Card Competition Act.

In a letter to Congressional leaders, B. Dan Berger, NAFCU president and chief executive officer, called the bill “unwarranted” and said it represents a “heavy-handed government intrusion into the credit card payments market that would hurt credit unions and consumers alike, while allowing the largest retailers to pocket significant cost savings.”

The act would enable at least two unaffiliated networks to process credit card transactions that carry the Visa or MasterCard brand, such as American Express, Discover, NYCE, Star and Shazam. It excludes networks that foreign governments support.

Under the bill, sponsored by Sen. Richard Durbin, D-Ill., Sen. Roger Marshall, R-Kan., Rep. Peter Welch, D-Vt., and Rep. Lance Gooden, R-Texas, the card-issuing banks would select the additional networks with merchants deciding which processors will support each transaction. The move will require networks to compete over fees, security, and service.

While retailers are looking to limit interchange or “swipe” fees, which they pay to the card-issuing bank for credit and debit transactions, Berger said the fees cover a variety of expenses, including the cost of customer service, system improvements, online transactions, data security, and card production.

“The Credit Card Competition Act is not about competition,” he said. “It is about increasing the profits of big box retailers at the expense of consumers and financial institutions by creating government intervention in a free market and establishing a backdoor price control on the credit card system.”

Berger added that the requirements in the legislation for multiple processing networks means that consumers will lose choice when it comes to credit cards, as big box retailers could now pick which network will process transactions and go with the cheapest and potentially less secure option. 

“Card rewards that consumers expect to receive for a transaction could disappear depending on the retailer’s choice, as could critical consumer protections such as fraud protection,” he added.

Berger said that the credit card system allows consumers to purchase goods and services from merchants that they may not be able to afford, and “ultimately, big box retailers receive far more value from accepting electronic payments than they pay in interchange fees and this legislation is just another money-grab for their industry.”

In response to the letter, Doug Kantor, executive committee member of the Merchants Payments Coalition, said in a statement that credit unions will be helped by the Credit Card Competition Act.

He noted that the bill applies only to financial institutions with at least $100 billion in assets and that only one credit union in the nation meets that test.

In addition, Kantor said that security would be improved because competition enhances services throughout the U.S. economy, and it would also block the participation of bankcard services provider China UnionPay, which would close a “glaring security gap that currently gives banks the option of using that network for handling sensitive financial information.”

The Merchants Payments Coalition is a group of retailers, supermarkets, restaurants, drug stores, convenience stores, gas stations, online merchants, and other businesses that the organization said is focused on reforming the U.S. payments system to make it more transparent and competitive.

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