The Battle Over Credit Card Fees: A Threat to Small Businesses and Consumers Alike
The Senate Judiciary Committee recently convened to address the alleged “duopoly” of Visa and Mastercard, which has left retailers and small businesses with little negotiating power over interchange fees on credit card transactions. Committee chair, Democratic Illinois Sen. Dick Durbin, emphasized the unusual bipartisan agreement on the need for reform.
The Cost of Credit Card Fees
Interchange fees, also known as swipe fees, are paid by merchants to cardholders’ banks whenever a customer uses a credit card. With a combined market cap of over $1 trillion, Visa and Mastercard control 80% of the market. In 2023, they charged merchants over $100 billion in credit card fees, mostly in the form of interchange fees.
A Call for Reform
Durbin, along with Republican Kansas Sen. Roger Marshall, has co-sponsored the bipartisan Credit Card Competition Act. This legislation aims to increase competition by requiring banks with over $100 billion in assets to offer at least one alternative payment network on their cards, besides Visa and Mastercard. This would give small businesses a real choice and potentially lower costs.
Visa and Mastercard Defend Their Fees
Representatives from Visa and Mastercard argued that their fees are incentives for adopting new technology and reducing fraud. They warned that the Credit Card Competition Act would stifle innovation and favor certain competitors over others.
The Impact on Consumers
High credit card swipe fees translate to higher prices for consumers. The National Retail Federation estimates that the Credit Card Competition Act would bring “fairness and transparency” to the payment system, ultimately benefiting American businesses and consumers. Notre Dame University law professor Roger Alford noted that the average American spends over $1,100 in swipe fees annually, more than they spend on pets, coffee, or alcohol.
Recent Developments
Visa and Mastercard agreed to a $30 billion settlement in March to reduce their swipe fees, but a federal judge rejected the settlement in June. Visa is also facing a Justice Department lawsuit filed in September, accusing the company of maintaining an illegal monopoly over debit card payment networks.
The battle over credit card fees continues, with significant implications for small businesses and consumers alike. As the debate unfolds, one thing is clear: the status quo is unsustainable, and reform is necessary to ensure a fair and competitive payment system.
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