Sen. Marshall in Washington Examiner: Credit Card Swipe Fees are Hurting Consumers
(Washington, D.C. August 11, 2022) – U.S. Senator Roger Marshall, M.D. has published an opinion piece in the Washington Examiner about the Credit Card Competition Act, legislation he and Senator Dick Durbin (D-IL) recently introduced. While you may click HERE or scroll below to read Senator Marshall’s op-ed in its entirety, he said in part,
“Capitalism without competition creates opportunities for unfairness and exploitation, especially in times of crisis…With razor-thin margins, wholesale inflation at over 11%, supply chain disruptions, and the unavailability of labor, Kansas consumers are spending an extra $700 a month due to inflation, and retailers are facing solvency problems…The public deserves the benefits of a credit marketplace subject to a normal, healthy competitive market that provides more options for retailers and customers alike, which is why I introduced the Credit Card Competition Act with Durbin…Our legislation encourages competition by requiring multiple routing networks on all cards issued by the country’s largest banks…Our bill also preserves the security of our financial system by forbidding networks funded or sponsored by foreign governments, such as China Union Pay, from entering this market…A fairer market environment will lower costs for small businesses and consumers, lead to more innovation, and create a more robust payments market.”
By: U.S. Senator Roger Marshall, M.D.
August 10, 2022
In the early 1900s, one of the most iconic Republican presidents of our time, Teddy Roosevelt, made history by tackling the megacorporations taking advantage of consumers, small businesses, and families. Appropriately named the “Trust Buster,” Roosevelt began a populist movement among Republicans that prioritized fairness for the working family and Main Street businesses.
It’s time to bust the credit card duopoly and make credit cards competitive again. The credit card industry is dominated by Visa and MasterCard, and the amount merchants have paid for fees levied to process their transactions more than doubled from $65.1 billion in 2011 to $137.8 billion last year. Capitalism without competition creates opportunities for unfairness and exploitation, especially in times of crisis.
Dozens of Main Street retailers and grocers brought to my attention the opaqueness of their credit card fees and the looming fee increases. As fuel prices began to soar, convenience stores and gas stations echoed their sentiments. With razor-thin margins, wholesale inflation at over 11%, supply chain disruptions, and the unavailability of labor, Kansas consumers are spending an extra $700 a month due to inflation, and retailers are facing solvency problems. With gross domestic product contracting for a second straight quarter, falling 0.9% from April to June, this recession will further affect Main Street and all retailers.
Despite the destruction that President Joe Biden’s agenda is doing to our economy, credit card companies raised their fees once again — ignoring a letter from Sen. Dick Durbin (D-IL) and myself. The average family already spends about $900 a year on swipe fees. The problem of no competition affects the pocketbooks of hard-working people.
I hate government interference as much as anyone. As a businessman, I’ve personally lived through the nightmare of implementing the Affordable Care Act and the Dodd-Frank Act. Those bills were government interference at their finest and were not intended to increase competition or decrease prices.
The public deserves the benefits of a credit marketplace subject to a normal, healthy competitive market that provides more options for retailers and customers alike, which is why I introduced the Credit Card Competition Act with Durbin. My legislation is not price control legislation; this is competition legislation.
Currently, credit cards issued by Visa and MasterCard are only processed over their own respective networks. The banks that issue these cards then demand arbitrarily high swipe fees the card companies set.
Our legislation encourages competition by requiring multiple routing networks on all cards issued by the country’s largest banks. Furthering our commitment to increasing competition, it will be the local bank that issues the credit card that gets to decide which new network to choose. Research shows this change, bringing routing choice to credit cards, could save businesses and communities $11 billion a year.
As for community banks, the backbone of financing for small businesses, they will have increased opportunities to enter the credit card issuing market as we’ve excluded banks of less than $100 billion in assets. Our bill also preserves the security of our financial system by forbidding networks funded or sponsored by foreign governments, such as China Union Pay, from entering this market. Visa and MasterCard are not the only companies capable of providing security for their customers. Independent networks have the technology and security features needed to process these transactions safely and with speed; they just haven’t been given the chance to compete.
Competition is the heartbeat of capitalism, and that is what the Credit Card Competition Act will provide. A fairer market environment will lower costs for small businesses and consumers, lead to more innovation, and create a more robust payments market.
Roger Marshall is the junior senator from Kansas.
There are currently four U.S. credit card networks: Visa, Mastercard, American Express, and Discover. Visa and Mastercard are known as “four-party” networks; they act as agents for thousands of card-issuing banks and mandate the fees and terms that the banks receive from merchants for each transaction. Merchants have effectively no leverage to negotiate fee rates and terms in four-party network systems, because they cannot risk losing access to all the consumers served by Visa’s and Mastercard’s member banks.
Visa and Mastercard wield enormous market power in credit cards; according to the Federal Reserve, they account for nearly 576 million cards, or about 83 percent of general-purpose credit cards. Approximately $3.49 trillion was transacted on Visa and Mastercard credit cards in the U.S. in 2021. Visa’s and Mastercard’s market power and network structure have enabled them to impose fees on U.S. merchants that are among the world’s highest, charging a total of $77.48 billion in U.S. merchant credit card fees in 2021. These fees include interchange or swipe fees which Visa and Mastercard require merchants to pay to issuing banks, as well as network fees that Visa and Mastercard require merchants to pay directly to them. Consumers ultimately pay for all of these fees in the price of the goods and services they buy.
Under the Credit Card Competition Act, the Federal Reserve would issue regulations, within one year, ensuring that banks in four-party card systems that have assets of over $100 billion cannot restrict the number of networks on which an electronic credit transaction may be processed to less than two unaffiliated networks, at least one of which must be outside of the top two largest networks. This would inject real competition into the credit card market—opening the door for new market entrants such as current debit-only networks, encouraging innovation and enhanced security, creating backup options if a network crashes, and exerting competitive constraints on Visa and Mastercard’s fee rates.
Senator Marshall also recently penned an op-ed for the Kansas City Star and Wichita Eagle about how the Credit Card Competition Act would specifically benefit Kansas retailers.
In April, Durbin, Marshall, and U.S. Representatives Peter Welch (D-VT) and Beth Van Duyne (R-TX) sent a bipartisan, bicameral letter to the CEOs of Visa and Mastercard urging the companies not to proceed with plans to raise their interchange fee rates. Visa and Mastercard nonetheless proceeded to raise fee rates, prompting Durbin to hold a Senate Judiciary Committee hearing in May on excessive swipe fees and barriers to competition in the credit card system.