By Catherine Miranda
The past few years have been exceptionally hard on consumers. With inflation reaching record highs and the cost of basic necessities like food and energy skyrocketing, we need to make sure our elected officials on Capitol Hill are working to help us.
I’m happy to report that some members of Congress and the Administration are putting consumer well-being at the top of their agendas. They recently passed the Inflation Reduction Act, just one example of policies coming out of Washington that will give everyday Americans a much-needed boost.
Yet while so much good work is getting done, not everyone has our best interests at heart. It started 12 years ago, when big box stores pushed Congress to pass an amendment that added harmful regulations to our debit cards. Congress did not intend to hurt us, but we ended up losing billions while greedy corporations got a windfall of cash. Now, members of Congress are considering passing the Credit Card Competition Act of 2022 (CCCA), putting the same regulation on our credit cards.
The original debit card amendment, named “the Durbin Amendment”, aimed to cut down on interchange fees, the fees that retailers pay to process electronic payments, with a routing mandate. This meant that banks were forced to allow additional “unaffiliated” networks to work on their debit cards, many of which are cheaper because they skimp on things like fraud protection and security. The huge influx of cheaper networks created a race to the bottom and drained billions out of our electronic payment system. In plain English, banks of all sizes lots more than $90 billion from the debit regulations, which they then passed onto consumers by raising fees, increasing minimum balances, and dramatically cutting back on free checking.
Members of Congress are now pushing CCCA to extend routing mandates to credit cards even though the bill text does not even mention consumers at all, and there is no evidence that it will help us. After the original debit regulations passed, Georgetown University Professor Vladimir Mukharlyamov and University of Pennsylvania Professor Natasha Sarin studied their impact and found basically zero evidence that the savings “trickled down” to consumers via lower prices at stores. Consumers got nothing and will continue to get nothing from routing mandates.
CCCA will hurt all consumers but have a disproportionate impact on those already struggling financially. When the debit card regulations went into effect, banks made banking more expensive and less accessible to cut costs, and the same thing will happen with credit cards. To make up for their billion-dollar losses, banks will also look to reduce their own liabilities by raising credit standards, interest rates, and fees, making credit harder to get for people who are lower income or have a lower credit score. Economists last year estimated this could kick up to 15 million people out of our credit system, primarily in financially marginalized communities.
We can also say goodbye to the rewards programs we use to help pay for gas, groceries, and plane tickets. Just a few years ago in Australia, their federal reserve bank imposed similar credit card policies to limit interchange fees. Australian consumers then saw their free credit cards disappear and their rewards programs shrink. If we let this happen in the US, consumers will lose $50 billion a year via lost credit card rewards alone.
The bottom line is that anyone who is pro-consumer should be anti-Credit Card Competition Act. It only works to serve the interests of big box stores like Amazon and Walmart while taking money straight from our pockets. Congress cannot let this bill pass.
Catherine Miranda is the Arizona State Senator-elect for legislative district 11, which encompasses south Phoenix, Laveen, and Guadalupe