Congress, don’t bail out big box retailers by saddling consumers with the bill | Opinion

Big-box retailers are seeking a bailout from consumers, especially those of modest means. And strangely enough, some people in Congress think that’s a good idea.

At issue is the Credit Card Competition Act, a bill spearheaded by Senators Dick Durbin, D-Ill. and Roger Marshall, R-Kansas. Retailers don’t like paying the fees associated with accepting credit cards. So they’re lobbying Congress to lower their cost of doing business — and saddling consumers with the bill.

The bill would grant retailers the exclusive power to choose a payment-processing network to handle their transactions, rather than using the network selected by the consumer, as signified by the logo on their credit card.

The problem? Retailers would pick the network that charges them the least, not the most secure option. After all, they have no obligation to protect consumers’ private financial data.

Lower prices unlikely

Retailers claim they’ll share their savings with consumers by lowering prices. But that’s not likely.

Look at what happened the last time Congress lowered retailers’ cost of doing business by capping interchange fees on debit card transactions with the “Durbin amendment” to the 2010 Dodd-Frank financial reform law. Three-quarters of merchants didn’t change their prices at all. More than one in five actually raised prices. Just 1.2% reduced them.

Big-box stores kept most of the money they saved. But most small merchants didn’t benefit from the fee caps. Two-thirds of retailers experienced no savings or failed to notice one way or the other. One-quarter saw their costs associated with accepting debit cards actually go up.

In many cases, the discounts that payment-processing networks offered on small transactions went away. That drove up costs for businesses that make “small” sales — like local coffee shops and mom-and-pop restaurants.

Maintaining a payment-processing network and keeping consumers’ data secure is expensive. Financial institutions responded to Durbin’s debit-card interchange fee caps by raising fees elsewhere — for example, by instituting monthly fees and minimum balance requirements on checking accounts. Economists at the University of Chicago estimate that the Durbin amendment has cost consumers between $22 billion and $25 billion since 2010.

Low-income Americans feel the burden of those extra fees acutely. It’s nearly impossible for people living paycheck to paycheck to maintain a minimum balance. In the absence of services like free checking, they may turn to costlier financial services providers like check-cashers and payday lenders.

According to a George Mason University study, the Durbin amendment caused the unbanked population to spike by an additional 1 million people.

History will repeat itself if the Credit Card Competition Act becomes law.

In fact, this bill could be even costlier than the old Durbin amendment because it raises the likelihood of fraud.

When a retailer experiences a data breach, it’s the financial institution that makes the consumer whole. And fighting fraud is growing more expensive. From 2020 to 2021, payment card fraud losses in the United States increased 18%, to nearly $12 billion.

Interchange fees help defray the costs of fraud-detection efforts and reimbursements for cardholders who fall victim. But the costs of fraud are outpacing interchange fees. Overall, card programs cost 1.6 times more than interchange revenue.

If Congress effectively slashes what retailers pay to accept credit cards, then issuers will face hard choices. They could scale back anti-fraud protections and expose individuals to more financial risk. They could hike fees. Others may issue fewer cards or stop issuing them altogether. That would reduce the availability of credit, particularly for people with less-than-perfect credit or no credit history.

Congress must not relieve big-box retailers of their cost of doing business. Doing so would threaten the security and sanctity of consumers’ finances.

Jim Nussle is president and CEO of the Credit Union National Association. He served as Office of Management and Budget director under President George W. Bush and was a member of Congress from 1991-2007.