MCUL Sends Letter on Interchange to Congressional Delegation
On June 21, MCUL sent the following letter to our Michigan Congressional Delegation:
Dear Senator/Representative,
On behalf of nearly two hundred not-for-profit member institutions, the Michigan Credit Union League (MCUL) writes to express our strong opposition to S.1838/H.R. 3881, the Credit Card Competition Act of 2023, that was introduced recently in the U.S. Senate and U.S. House of Representatives. Collectively, Michigan credit unions serve more than 5.9 million members across the state of Michigan. These members value the wide range of free and low-cost products and services available to them, including access to low interest and low fee credit cards that are not found at other financial institutions.
If passed into law the Credit Card Competition Act would decimate a credit card payment system that is efficient, effective and is designed around both protecting consumers and their personal information and providing retailers a fast, reliable and guaranteed method of payment that protects them from fraudulent payments, bounced checks and the significant costs and inherent risks that come from dealing with large sums of cash. Merchants also benefit from the system through higher transaction values which boost their bottom line. In providing these protections and guarantees to consumers and merchants, financial institutions assume all the costs that come with maintaining accounts, fraud prevention and reimbursement, security, customer service and consumer rewards programs.
The Bill Presents a Threat to Sensitive Consumer Data
The Credit Card Protection Act would encourage merchants, whose primary goal is to maximize profits, to choose cheaper card networks that haven't invested in the latest security technology. As a result, sensitive consumer payment data will be vulnerable to bad actors and foreign networks. Since 2011, credit card fraud rates have doubled making it extremely important that Congress protect the security system that keeps this vital credit line safe, accessible and affordable. Credit card interchange makes that possible.
Small Community Financial Institutions Would Be Disproportionately Harmed
Small financial institutions would be harmed even with the $100 billion exemption contained in the bill. While most credit unions and community banks are not directly subject to the proposed credit routing requirement, these financial institutions will undoubtedly still suffer significant consequences. The Merchant Discount Fee, of which interchange is a portion, is an interconnected network of contracts between card processors, financial institutions and retailers. Changes to any part of this ecosystem will have substantial ripple effects throughout the card network because the cost of running the card program will only increase, and those costs will be passed down to other system participants. This means those with the least bargaining power, credit unions and community banks, small businesses and consumers will be greatly impacted.
Small financial institutions will face higher costs if the bill becomes law. In addition to reduced revenue, recent Federal Reserve data shows that credit unions and community banks also face higher costs as a result of these types of price controls. These institutions typically have a lower number of transactions than covered issuers. This means it is more difficult for them to absorb costs compared to larger issuers with a higher number of transactions.
It's now been nearly thirteen years since Congress passed the Durbin Amendment as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Shortly after the passage of the Amendment, which imposed price caps on debit interchange fees and mandated routing requirements on debit transactions, there was a significant decline in low-cost banking services and free checking accounts available to consumers. A GAO report found that the Durbin Amendment was “among the top five laws and regulations most cited…as having significantly affected the cost and availability of basic banking services.” Given the negative impacts the Durbin Amendment has had on financial services and products available to consumers, especially low- and moderate-income Americans, it makes little sense for Congress to support an expansion of similar mandates and requirements to credit card transactions. It’s not difficult to foresee an additional decline in services available to consumers should H.R. 3881/S.1838 or similar legislation become law, especially at small and medium-sized credit unions and community based financial institutions who would struggle the most with the loss of credit interchange revenue.
Senator/Representative, Michigan credit unions respectfully request that you oppose the Credit Card Competition Act for all the reasons cited in this letter. We look forward to continuing the dialogue on this topic over the summer and into the fall when we’ll be in Washington, DC for our annual Hike the Hill.
Sincerely,
Patty Corkery
President and CEO
Michigan Credit Union League & Affiliates
