Financial Protection

Visa and Mastercard don’t offer rewards, banks do!

The banks’ massive credit card profits and the anti-competitive practices of the card networks to set high “swipe fees” that merchants are forced to accept and pass along to their customers are at stake! The big banks, the Visa-Mastercard oligopoly and various associations, purported coalitions, rewards and points sites are all urging consumers to take the banks’ side and tell Congress to keep their “hands off my rewards!”

Living in the DC area, I’ve even seen prime-time TV ads urging opposition to bi-partisan legislation championed by Sens. Dick Durbin (D-IL) and Roger Marshall (R-KS) that would require (only the biggest) banks to give small merchants choices — including at least one card network not owned by Visa or Mastercard — to process (route) their card transactions.

Of course, the banks and their supporters call the proposed Credit Card Competition Act a “mandate from Washington,” claim it will end credit card rewards programs and, as a kicker, assert it will promote fraud.

Yet, as Senator Durbin recently explained on Fox News:

“[Florida Bankers CEO] Sanchez claims that our bill will make credit card rewards disappear. Nonsense. Banks, not card networks, offer rewards programs, and they do so to attract cardholders to use their banks and not other banks. Increasing competition among networks will not diminish banks’ competition for cardholders. And again, our bill only applies to the largest handful of banks.”

Yes, the banks offer the rewards, but the banks let Visa and Mastercard not only make the swipe fee rules but set the swipe fee prices. As I’ve argued in both recent Congressional testimony and recent commentary, that’s a market failure that forces merchants to pay too much and all of their consumer-customers to pay more at the store and more at the pump.

Ed, you mean cash customers subsidize affluent-cardholding customer rewards? Yup. That’s according to Federal Reserve Board economists. As journalist James Lardner recently explained in the New Yorker:

“The rewards game did double duty, diverting attention from costs that would outweigh the benefits for a majority of cardholders…the game worked out to the industry’s advantage as well, thanks to an under-scrutinized fact about how it makes most of its money—not from interest or late charges, as painful as they can be, but from a set of fees that automatically apply to every transaction. Of these, by far the biggest is an interchange fee, also known as a swipe fee.”

Of course, the banks, the payment networks, associations and rewards websites leading the opposition to the Durbin-Marshall (R-KS) competition bill try to paint a “deep-fake” picture that only includes mega-merchants on a cash grab. Yet as James Lardner of the New Yorker explains further:

“The demise of rewards would be a boon to retailers, and, above all, to the small operators, since, unlike the giant chains, they lack the clout to issue branded credit cards of their own or to negotiate concessions from the banks.”

Here’s more from today’s release from the small merchants at

“Everyone knows about Scrooge and the Grinch, but the hidden villains of the holiday season are Visa, Mastercard and the megabanks that issue credit cards under their brands…Credit and debit card swipe fees—which have doubled over the past decade and soared 24% to a record $137.8 billion last year—are most merchants’ highest operating cost after labor. The fees are far too high to absorb, especially for small merchants, and drive up consumer prices by an estimated $900 a year for the average family.”

Oh, don’t forget the banks’ other unsubstantiated claim that new network competition would increase fraud. As Senator Durbin continues:

“Sanchez also claims that our bill would cause an increase in credit card fraud. But that would only happen if a big bank chose to add a second network that had shoddy security. As we’ve already seen with debit cards, banks don’t have any incentive to do that. Further, our bill would give merchants incentive to route the transaction over the network with better security, because card fraud losses are typically charged back to merchants. More competition will incentivize better security, not worse.”

The Congressional session is winding down. There’s still a chance to attach Durbin-Marshall and its House companion to any final legislative package. It’s the right thing to do for consumers, small merchants, competition and the economy. Happy holidays.

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