Don't let legislation jeopardize rural Americans' access to credit | Opinion

Many rural Tennesseans know what it's like to live where credit unions and banks are few and far between.

Now they could find themselves cut off from credit and other vital financial services almost entirely, if legislation pending in Congress advances.

At issue is the Credit Card Competition Act, a bill that would regulate the fees merchants pay the financial institutions that issue credit cards and the networks that process credit-card transactions. The measure's chief sponsor, Sen. Dick Durbin, D-Ill., says it will bring "real competition to credit card networks" and "hold down costs for Main Street merchants and their customers."

Hardly. Interchange fees are what allow many credit unions and banks to provide credit, especially in underserved and rural communities. There are 132 credit unions operating throughout the Volunteer State, serving about two-thirds of all counties.

Without interchange fees, these institutions might have to stop issuing credit cards altogether or increase fees to the point that financial services become unaffordable for many people.

Interchange fees are generally tiny, about 2% of each credit card transaction. But merchants – especially big-box retailers that process millions of transactions – would like to see them decrease.

Durbin's bill would grant the merchants' wishes by allowing them to choose a network to process transactions, rather than using the network the consumer has chosen, as signified by the Visa, MasterCard or other payment network logo on the front of the card.

Merchants will almost certainly choose the network with the lowest interchange fees. But that decision could have significant negative consequences for both consumers and financial institutions.

Take security. Interchange fees underwrite the technology that keeps the details of our transactions safe from prying eyes and prevents thieves from stealing our sensitive information. The network with the lowest interchange fees may not be the best steward of consumer data.

CounterpointWhy Congress should pass the Credit Card Competition Act | Opinion

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Merchants may not care. They are not on the hook for fraudulent purchases – the financial institution that issued the card bears all the costs. A less secure payment network could therefore raise fraud-related costs for credit unions and banks.

Those costs are already high. Fraud rates have doubled over the past decade. More than one-third of credit unions reported greater losses due to fraud from 2019 to 2020. The average fraud payout in 2020 was $1,600 per card.

Just this September, a judge sentenced a Florida man to 70 months in prison for a scheme in which he installed "skimmers" to steal credit card numbers at a number of East Tennessee stores, including CVS, Walgreens and Kroger.

Financial institutions and payment networks today spend billions policing criminal activity. Credit unions, on average, assume 8.6 cents in costs per transaction to protect consumers from data breaches. Replacing a contactless card – as financial institutions must after a data breach – runs $6.50.

Those small costs quickly add up.

The end result of a weaker interchange ecosystem would be higher fees and interest rates for consumers -- or for some credit unions and banks, the elimination of credit cards offerings altogether.

Those are consequences that members of vulnerable communities can ill afford. Their need for credit won't go away if credit unions and banks scale back their credit card programs. Instead, they'll be forced to seek credit on more punitive terms from payday lenders and other less regulated institutions.

People with less-than-perfect credit or no credit have greater access to secure financial services thanks, in large part, to the funding provided by the current interchange system.

The Tennessee Valley Federal Credit Union, for example, announced this August it was expanding its service area from 13 to 17 counties in Southeast Tennessee and north Georgia. TVFCU issues cards through the Visa system.

In Iowa, Ascentra Credit Union has opened branches in underserved areas, helping displace predatory "payday" lenders. Earlier this year, the Credit Union of Texas announced plans to open 10 to 15 new branches in rural East Texas.

And last year, Kansas's credit unions provided nearly 90,000 loans to individuals with credit scores of 640 or lower – some 70 points less than the national average. Missouri credit unions offered about 83,000 such loans.

Interchange fees help contribute to such expansions of service. Durbin's bill would gut them – all to save big retailers a few bucks.

Rural and underserved communities in Tennessee and around the country deserve better. The Credit Card Competition Act promises "savings" we can't afford.

Lisa Ginter is the vice chair of the Board of Directors for the Credit Union National Association and has served as the CEO of the Kansas-based CommunityAmerica Credit Union since 2015.

This article originally appeared on Nashville Tennessean: Opinion: Don't let bill jeopardize rural Americans' access to credit