A little over a decade ago, Illinois Senator Dick Durbin introduced a last-minute amendment to the Dodd-Frank Consumer Protection Act that added routing mandates to debit card purchases. The stated goal was to save large retailers money so they could pass that savings on to their consumers.
The reality of the situation is that the retailers did not pass those savings on and instead prices went up. Banks lost billions of dollars and were forced to generate revenue in other ways, including raising account minimums and fees for consumers. Small businesses also suffered because banks were forced to charge the maximum interchange fee on debit card transactions, cutting into profits.
Now Senator Durbin is at it again, this time in the credit card market. He has introduced the Credit Card Competition Act of 2022, which will establish unnecessary routing mandates on credit card transactions. This will again cost small issuing banks and credit unions billions of dollars to save large retailers money.
Under this proposed routing system, the merchants will be permitted to select the system to move the funds from a credit card purchase, taking the least expensive option. Not surprisingly, the least expensive option is often the least secure. This is not a step we should be taking in a time when online security is such a focus.
Because it will cost issuing banks and credit unions billions of dollars, it will decimate the credit cards reward system. To make up for the loss in revenue, issuing banks and credit unions will be forced to charge annual fees. Free credit cards will be a thing of the past. The cash rewards program is a system that is highly valued by our tourism industry and families around the nation.
There is no mention as to how the Credit Card Competition Act will help the consumer. It’s almost as if the consumer is an afterthought. Maybe Sen. Durbin has excluded any mention of the consumer because this bill won’t help them.
Not only will it destroy the credit card cash rewards system, but it will make credit cards harder to access. To reduce their own liabilities, small banks and credit unions will have to be much more selective on who can obtain credit, resulting in higher interest rates and credit standards. This will cut down on the number of people who can obtain credit cards, which will also hurt small businesses because people spend more when they have access to credit. Without credit, people will spend less in our locally owned shops and restaurants. We will have fewer people using credit cards to travel to tourist destinations throughout West Virginia and specifically in the southern part of the state.
This will hurt the primary drivers of our economy, small businesses. Small businesses make up 98 percent of the businesses in West Virginia. These are the ones that sponsor local Little League teams and donate to local churches. We need to protect these companies, not pass unneeded policies that hurt them.
As the president of a local bank here in southern West Virginia, I know the damage this unnecessary piece of legislation will have on our economy. I just hope our senators in Washington, D.C., recognize this and oppose the ill-named Credit Card Competition Act of 2022.
— Jim King is the president and CEO of The Bank of Monroe and is the 2022-2023 chairman of the West Virginia Bankers Association.