Congress Reintroduces Federal Fix to Rising Swipe Fees
With the debt limit deal behind them, Congress can now turn its attention to other priorities. At the top of this list should be tackling rising swipe fees that are costing American families an average of $1,000 a year.
While Congress and the Biden administration have shed light on "junk fees" and worked towards greater transparency, another insidious fee has slipped under the radar, slyly adding to the cost of every purchase we make – swipe fees. These fees and the additional costs they incur are concealed from consumers, and it is imperative that we bring this issue to the forefront of legislative action.
Thankfully, a bipartisan, bicameral bill was recently introduced by Reps. Lance Gooden (R-TX-05) and Zoe Lofgren (D-CA-18) and Sens. Roger Marshall (R-KS), J.D. Vance (R-OH), and Dick Durbin (D-IL) to tackle this issue head on. The Credit Card Competition Act would require that banks with over $100 billion in assets provide businesses with an additional network option to process credit card payments on, injecting competition into the payments marketplace.
Currently, Visa and Mastercard hold an 80 percent market share and set fixed prices for swipe fees that banks charge while issuing cards under their brands. This practice eliminates competition among banks to provide merchants with the most favorable terms. Additionally, they limit processing to their own networks, disregarding other networks that charge lower fees and are reported by the Federal Reserve to have lower fraud rates. With the CCCA, one of the processors could still be Visa or Mastercard, but the other would be a competing network such as NYCE, Star, or Shazam.
As a member of the Senate Banking Committee when I was in Congress, it was a priority for me to address the stranglehold that credit card giants have on swipe fees. The pending legislation is a win-win for customers and businesses.
The consequences of rising swipe fees directly impact consumers by driving up the prices of goods and services. When businesses are forced to bear higher swipe fees imposed by credit card companies, they inevitably pass on these costs to consumers, resulting in rising prices and acting as a multiplier of high inflation. This burden falls disproportionately on lower-income individuals and families who heavily rely on credit cards to meet their daily needs. A recent report showed that nationwide, 37 percent of adults said they used credit cards to cover basic living expenses, up from 23% in 2021. As the cost of essential items such as rent and groceries continues to rise, the impact of these fees becomes more pronounced.
These exorbitant fees also eat into the revenue of small businesses, hindering their ability to invest in growth, hire more employees, or offer competitive prices. Congress can provide much-needed relief to small businesses simply by giving them another option to process credit card payments.
The implications of high swipe fees extend beyond individual consumers and small businesses; they wreak havoc on our economy at large. Excessive swipe fees may discourage businesses from accepting card payments altogether, restricting consumer choice and convenience, or prevent them from reinvesting in their business, hiring new employees, or lowering prices. This, in turn, can lead to decreased economic activity, reduced sales for businesses, and an overall hindrance to economic growth.
Swipe fees set by credit card companies and collected by major financial institutions create an environment plagued by limited transparency and competition. This lack of competition allows fees to skyrocket without adequate justification or room for negotiation on the part of merchants. Congressional intervention is crucial to promoting fair competition and ensuring that the market operates in the best interest of both businesses and consumers.
The time has come for Congress to stand up for American consumers and businesses. By taking action against rising swipe fees, our elected representatives can demonstrate their commitment to promoting economic prosperity, safeguarding consumer interests, and building a fairer and more transparent financial landscape for all. I appreciate Senators Marshall and J.D. Vance, and Rep. Gooden’s leadership on this issue.
It is time for the rest of Congress to seize this opportunity and take the necessary steps to relieve the burden on American families, empower small businesses, and ensure a thriving economy for generations to come.
Former Sen. Dean Heller sat on the Senate Banking Committee.
