Consumers in West Virginia rely on credit cards for their day-to-day needs, from paying for groceries and school supplies to covering emergency auto repairs or medical expenses. Accepted almost everywhere, credit cards offer robust security, fraud protection, and access to credit that might not otherwise be available. Interchange fees, which are only a fraction of a cent on every dollar transacted, make this possible.
The U.S. Senate Judiciary recently held a hearing called, “Excessive Swiping Fees and Barriers to Competition in Credit and Debit Card Systems”, which is an effort by merchants pushing Congress to restrict credit card interchange fees and add routing mandates — and it’s bad for consumers.
Restrictions on credit card trading would deprive credit unions of essential resources that work day in and day out to serve their communities and force them to choose between funding vital programs that benefit their communities or continuing to operate credit card programs. low cost that provide lines of credit to members who would otherwise not be able to obtain them.
The current trading system provides security for consumers, merchants and financial institutions. These fees cover the cost of fraud detection, credit monitoring, and fraudulent purchase protection that reassures consumers and merchants when bad actors attack. The robust security features that make credit cards so attractive to consumers come at a cost. While interchange fees now cover these costs, a potential reduction in these fees, coupled with an alarming increase in fraud, poses a real threat to data security.
Credit card routing mandates can also hamper data security. The proposed routing mandates would give retailers the ability to choose the network they use to route credit card purchases, which is often the cheapest option. Unsurprisingly, the cheapest option is often not the safest or most reliable. This will happen at a time when we need more financial security, not less.
The rate – and cost – of criminal activity is on the rise. When a merchant’s systems are hacked or a card is otherwise compromised, financial institutions absorb a significant portion of the costs.
* $1,600/card – The average fraud payment in 2020
* $6.50: average cost to replace contactless cards
* 36% – Number of credit unions reporting higher fraud losses, 2019-2020
It is important to recognize that credit cards represent an extension of unsecured credit to a consumer, which means that financial institutions provide a loan to a consumer each time a credit card is used to purchase goods or services. services from a retailer or merchant on a network that was uniquely developed for this purpose.
When merchants pay an interchange fee, it is the cost they incur for the service of using the card network. Imposing additional compliance charges or capping the rates charged for the service provided would have a disproportionate impact on the ability of credit unions to offer card services. At least 15% of credit unions would be forced to reduce or eliminate their credit card programs.
The Durbin Amendment was enacted to allow merchants to lower their prices and encourage customers to spend more; however, an analysis by the Federal Reserve Bank of Richmond found that only about 1% of merchants passed their savings on to consumers through reduced prices.
Expanding exchange regulations and adding routing mandates at a time when the economy is struggling to recover from a global pandemic will only further damage community financial institutions and limit their ability to serve the small businesses and individuals who need it most.
The West Virginia Credit Union League, which represents more than 380,000 members, strongly opposes expanding credit card trading restrictions because it is clear that it is failing government policy, which should not be implemented.
Rich Schaffer is the president and CEO of the West Virginia Credit Union League in Parkersburg, WV.