VOICES: “Big Box Bill” leaves consumers open to more data breaches

At a time when hard-working Ohioans are already feeling the financial pinch from inflation, Congress is considering a flawed bill that would put consumers at risk.

S.1838, the so-called Credit Card Competition Act, aims to place government mandates on consumers’ credit card choices under the guise of “increasing competition.” Instead, this legislation would hurt consumers and small businesses, while benefiting big box retailers.

While retailers reap the benefits of credit cards – immediate payment, protection from fraud, and often larger purchases by consumers – they do not want to pay the cost of accepting credit cards. Interchange fees help defray, but do not cover, the cost of fraud detection, credit monitoring, and fraudulent purchase protection that makes consumers and merchants whole when bad actors attack.

And data security is a significant concern. In 2022, more than 422 million individuals suffered data breaches. Interchange fees help keep credit cards safe from would-be hackers, facilitate a secure payment between a small business and consumer, and ensure both parties are not responsible for fraudulent purchases.

Under the guise of competition, this bill would give retailers the ability to choose card payment processing systems based solely on price. Retailers could choose the cheapest option, with no requirement to keep consumers’ data safe. The legislation would eliminate funding for credit card rewards programs, weaken cybersecurity protections and increase fraud. This is certainly not a win- win for consumers, for small businesses or for small financial institution card issuers such as credit unions and community banks.

In addition, interchange fees support affordable access to credit. Consumers rely on credit cards to build credit and gain access to funds. Having access to safe, affordable credit at any small business that accepts credit cards is very important to the majority of consumers.

This system also helps Main Street businesses build their customer base at a time when fewer people carry cash and most count on being able to use their credit cards wherever they go.

Plus, the card programs offered by financial institutions allow small businesses to outsource credit risk and compete with large retailers without operating their own card programs. Credit unions and community banks are small businesses, too, offering needed products and services to our local businesses – including credit card programs.

History has proved that the so-called “exemption” for credit unions and community banks in this legislation will not work. The debit card interchange bill passed by Congress in 2010 resulted in a 30% decrease in interchange revenue for smaller financial institutions, which were supposedly exempt from the legislation. Considering that interchange already does not cover the costs for credit union credit card programs, the likely result of losing 30% of interchange fees could be devastating to both small financial institutions and small businesses. It would lead many lower- volume issuers – like credit unions and community banks – to end their credit card programs altogether, and the benefits consumers value highly such as cash-back rewards. Only larger credit card issuers could withstand these losses and maintain needed security measures. This would give consumers and small businesses fewer choices and less community-focused terms while high-volume, highly profitable merchants reap the benefits.

And as large retailers pay less in interchange, it will not mean more money in consumers’ pockets, either. When government-imposed interchange mandates on debit cards took effect, letting big businesses keep more revenue, over 98% of merchants did not pass on any savings to consumers as promised. More than 20% increased prices.

Simply put, interchange fees are an important cost of doing business with credit cards. Despite the significant consumer risk, big box retail groups want Congress to dismantle the interchange system by passing this flawed bill. If adopted, it will leave small businesses and consumers with fewer choices, less access to credit, and more data security risks.

Bill Burke is Chair of the Ohio Credit Union League and President/CEO of Day Air Credit Union which serves over 50,000 residents and businesses in the Miami Valley.

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