On December 13, 2023, the Congressional Research Service issued a report titled How the Credit Card Competition Act of 2023 Could Affect Consumers, Merchants, and Banks highlighting potential issues for Congress. 

As we previously blogged, Senator Dick Durbin and Representative Lance Gooden introduced “The Credit Card Competition Act of 2023” (a/k/a Durbin 2.0) to regulate interchange fees on credit cards by requiring certain credit card issuers with over $100 billion in assets to enable at least two credit card networks on their credit cards, and at least one of those networks must be a network other than Visa and Mastercard. The Act does not apply to American Express and Discover issued cards. Since being introduced on June 7, 2023, the bill remains in the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Service.

After explaining all of the players involved in processing a credit card transaction (customers, issuing banks, card networks, merchants, merchant acquiring banks and payment processors) and how credit card transactions are processed, the report addresses five potential issues raised by the Credit Card Competition Act of 2023:

1. The ultimate impact of routing restriction prohibitions is not certain. Even if an issuing bank ensures that cards can be routed over multiple networks, merchants would still want to choose the most popular ones, and consumers would still want cards that are accepted everywhere. Merchants are not incentivized to switch networks and even if a merchant contracts with a smaller payment network, it is unlikely that the issuers would enable that network on their cards.
2. Benefits are unclear. Issuing banks argue that rewards programs may disappear. Issuing banks might gain more bargaining power with additional network options. Retailers stand to benefit from lowers fees, but might face higher incidences of fraud if payment security is weakened. It is not clear whether retailers would pass interchange savings on to consumers.
3. Payment networks may be less willing to invest as much in secure payment technologies, as part of the benefit would accrue to their competitors.
4. There may be unintended consequences. For instance, major retailers could create a payment network that cuts out the major payment networks to lower interchange costs and potentially lead to conflicts of interest.
5. There is no clear mechanism for the regulators to ensure that banks are complying by making multiple networks available to merchants.

It is noteworthy that the report expresses uncertainty about the impact of credit card routing restrictions while the Federal Reserve staff have expressed little uncertainty in discussing the effects of the Fed’s proposal to lower debit card interchange and are not proposing to change the Fed’s debit card routing restrictions.

In October 2023, Ballard Spahr’s Consumer Finance Monitor Podcast released an episode, “Understanding the Credit Card Competition Act a/k/a Durbin 2.0,” with special guest Zarik Khan, Founder and Managing Director of Finsolute Advisors that examined each party’s role in a credit card transaction, discussed how the bill’s requirements would operate, assessed the principal arguments made in support of or in opposition to the bill, and discussed the bill’s political prospects.

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