If you’re like millions of Americans, you’ve probably enjoyed the benefits of credit card rewards, while experiencing the peace of mind knowing that your transactions are processed through a well-known network like Visa® or Mastercard®.
This is why the Credit Card Competition Act, or CCCA, could be bad news for consumers. Congress has recently proposed this bill which if enacted, could put the entire credit card rewards ecosystem at risk.
What is the Credit Card Competition Act?
The Credit Card Competition Act is a bill in Congress that addresses network access and competition in credit card transactions. The bill sponsors’ stated goal is to increase competition in the credit card industry, with the hope that this will reduce the expenses for merchants during the credit card transaction process.
The bill sets a one-year deadline for the Federal Reserve to establish regulations. These would include a mandate that large banks must enable their credit cards to be processed over at least one alternative network besides the two largest, which are currently Visa® or Mastercard®.
The alternative networks could be smaller, lesser known and have less mature infrastructure. It is interesting to note that while the CCCA purports to introduce more competition in the credit card market, not all credit card networks and issuers are covered by the bill. In fact, two of the largest networks – Discover® and American Express®, who issue cards on their own networks – are excluded from the bill’s requirements.
Could there be an impact on credit card rewards?
If the CCCA is enacted, some credit card issuers might scale back credit card rewards.
Here’s why — banks, such as Chase, invest more than 90% of all interchange fees they receive (the fees charged to merchants to facilitate the processing of credit card transactions), into credit card rewards programs and benefits for their cardmembers.
Therefore, cardmembers receive the value of interchange fees in the form of rewards or cash back, as well as other cardmember benefits.
If the CCCA is enacted and merchants choose to route transactions to cheaper, less established networks, interchange fees would likely decrease. Banks may then have fewer resources available to fund rewards programs and cardmember benefits, resulting in credit card rewards programs being scaled back.
Opponents of this bill cite the Durbin Amendment, which introduced capped interchange fees and dual routing requirements on debit cards in 2011. Subsequently, debit card rewards were eliminated. History could repeat itself if the CCCA results in reduced interchange fees for credit cards, as they did for debit cards.
How else could the Credit Card Competition Act impact consumers?
Beyond the effects to rewards, this bill could result in limiting consumer spending, reducing access to credit and ultimately slowing economic growth.
Cardmembers who rely on credit card rewards to fund their travel, for example, may stop traveling altogether. Here are a couple potential implications:
Credit card providers could be less likely to lend
If you’re someone with less than perfect credit, it may become harder to access credit cards or credit in general. Revenue helps to fund the lending opportunities for those with lower credit scores or limited credit history.
If this revenue is reduced, banks may approve fewer customers or increase certain fees. Credit will be less available if credit cards are less profitable than they were before.
Consumers may have less spending power
If rewards programs and access to credit are reduced, consumers may find they have less spending power. Consumers receive roughly $60 billion per year in credit card rewards, enhancing their spending power.
If consumers lose these credit card benefits or have less access to credit, overall spending may decrease, directly affecting the economy. Not only that, it may also negatively impact many of the merchants the CCCA intends to benefit.
What consumers can do
Chase wants consumers to continue enjoying the benefits of credit cards and their rewards. If you’re interested in learning more about how credit card rewards can currently help you earn cash back, travel rewards, gift cards and more, check out our Education Center.
You can also visit the Electronic Payments Coalition website to get updates on the legislation as it moves through Congress.
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