If you like your rewards, you can keep your rewards. However, if a federal bill under consideration is passed, that may not happen.

In another display of ill-advised—though well-intended—public policy backfiring on the people it’s intended to help, congressional banking overseers have proposed regulating processing fees to reduce inflation or costs, but may end up robbing households of a favored banking perk: rewards programs. Additionally, some high-risk consumers may lose access to credit card options. 

The Credit Card Competition Act (CCCA), introduced by Sens. Dick Durban (D-IL) and Roger Marshall (R-KS), would force large financial institutions to use at least two credit card networks to process transactions, and one of the two cannot be Visa or Mastercard. Currently, they are only required to use one network. 

According to a fact sheet on the bill:

This competition and choice between networks would incentivize better service and lower cost; in fact, for more than a decade, federal law has required debit cards to carry at least two debit networks, and this requirement of a choice of debit networks has fostered increased competition and innovation in the debit network market and has helped hold down fees.

This effort is aimed at breaking the Visa/Mastercard duopoly of processing networks, inspired by the view that there is not enough competition in the space. However, that may not be true entirely.

As R Street’s Anthony Lamorena wrote:

In reality, Visa and Mastercard are very different companies that vigorously compete between themselves and others for market share, representing 42 percent and 22 percent respectively. Beyond competition within the interchange network marketplace, there is also competition outside of it. PayPal, Venmo, Zelle, personal checks, and cash are just a few options that some businesses might actually prefer.

So, perhaps there is more competition in credit card processing than first meets the eye.

Regular Americans probably care more about how it affects their wallets. In this regard, they should be concerned.

Credit card processing fees create a pool of revenue to fund, among other things, loyalty programs such as cash-back rewards. If history is any indicator of how such regulations impact reward programs, the CCCA could lead to:

  • Higher prices
  • Higher credit card fees
  • Fewer rewards 

After Senator Durbin’s 2010 amendment to the Dodd-Frank Act reducing debit card swipe fees passed, a number of outcomes resulted. 

Retail prices did not fall but rose in some cases. According to Federal Reserve Bank of Richmond survey results, although most merchants did not change their prices, more than 21% of merchants did increase their prices, while just a meager 1.2% reduced their prices after the rule went into effect. 

Also, free and low-cost bank accounts dried up. According to research by the Federal Reserve Bank, banks “subject to the cap raised checking account prices by decreasing the availability of free accounts, raising monthly fees, and increasing minimum balance requirements, with different adjustment across account types.”

In addition, debit card rewards programs largely disappeared.

At a time when customers are forced to do more with less because of elevated inflation and high interest rates on mortgages, credit card rewards programs offer customers valuable perks that they can use to fund their lifestyles, from paying for family vacations to back-to-school shopping. 

Bottom Line

Customers lost out when Congress cracked down on debit card swipe fees. 

Now, lawmakers have targeted credit card processing fees. We can only expect that once again, customers end up on the losing end of the swipe.