The Senate Judiciary Committee will convene today to consider a bill that could upend the credit card processing system in ways that leave consumers and small businesses worse off.

On the docket for the full committee is a hearing entitled “Bringing Competition and Lower Fees to the Credit Card System,” which is a discussion of the Credit Card Competition Act (CCCA). The CCCA, a bill 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.

The goal is to disrupt the payment processing industry, which is led by Visa and Mastercard. Discover and American Express, as well as others, are hoping to break up the duopoly.

Proponents market this bill as a way to reduce credit card swipe fees—reducing costs for businesses such as retailers and, subsequently, consumers. The theory is that by introducing alternative networks, it would force Visa and Mastercard to lower interchange and network fees.

While this appears to be a sound way to expand competition in the credit card processing industry, the devil is in the details and the outcomes. There are few details in the bill as it’s written, but we can surmise some of the outcomes. 

Here are 3 ways that the CCCA could backfire on consumers:

  1. Lost credit card rewards programs. Credit card swipe fees create a pool of funds to draw on for cardholder benefits such as loyalty and cash-back programs. Reducing swipe fees will likely lead credit card companies to reduce or eliminate these valuable programs. Credit card rewards programs are a lifeline for many families today, as inflation’s toll and sustained high prices eat up more of their incomes. A new analysis by the Electronic Payments Coalition finds that while rewards card ownership has risen across all income segments, adoption by low-income households is surging.
  2. Private data at risk. Swipe fees fund credit card companies’ investments in data security, card security, and fraud prevention. Opening up credit card processing to untested, less secure payment networks could increase the risks of fraud and data breaches. As R Street Institute’s Caroline Melear notes:
    “Credit card companies and the banks that issue the cards dedicate significant resources toward fighting security breaches and getting ahead of new avenues for fraud. For example, the implementation of chip technology, which was spearheaded by credit card companies, led to an 87 percent reduction in fraud over a four-year period. In order to fund this and other security measures, they rely on swipe fees charged to merchants at the time of sale.”
  3. High fees. The theory is that competition will drive down swipe fees for merchants, which they pass on to consumers. The problem is that historically, this has not happened. In an article for PYMTS, Karen Webster lays out many arguments for why the CCCA is unworkable and will “collapse under its own weight.” One argument she points to is that those fees will go down:
    “It is also flawed thinking that merchants will re-allocate their interchange fee savings to consumer promotions and rewards, if past is prologue.
    “Research in the aftermath of the first Durbin reduction to debit interchange finds that merchants didn’t — and if they did, the savings were so insignificant as to be imperceptible to consumers. Home Depot even admitted in a 2011 earnings call that they realized a $35 million net margin increase from interchange fee savings after pledging to reallocate those savings to consumers.”

Good intentions are not good enough. The CCCA is intended to introduce competition in the credit card processing industry but could backfire on consumers through lost rewards programs, high fees, and data privacy risks.