Credit Card Competition Act Threatens Nevada’s Tourism Industry and Hurts Consumers

An age-old concept with a new name, the Credit Card Competition Act (CCCA), is posing a threat to a significant part of Nevada’s economy. Although the bill failed to gain much traction when it was introduced in Congress last summer, its sponsors are likely to reintroduce it in the future.

The Dodd-Frank Act was amended in 2010 to incorporate routing mandates and a cap on interchange fees for debit cards. The reasoning behind this was that restricting interchange fee revenue and reducing the costs associated with processing debit card transactions could enable retailers to pass on the savings to consumers. 

However, the expected savings did not materialize for consumers. Instead, large retailers such as Target and Walmart, who had lobbied for the policy, saw a profit increase of around $100 billion. A study conducted by the Richmond Federal Reserve revealed that nearly all retailers either maintained the same prices or increased them after the amendment. In the latest version of the bill, consumers are not even mentioned.

Some advocates of the plan argue that interchange fees burden retailers who prefer to receive cash payments. However, retailers are aware that cash transactions can actually cost them more than 2% plus interchange fees due to factors such as cash theft, time and labor costs associated with depositing cash into bank accounts, and increased work hours required to manage cash.

According to a report by the IHL Group, the cost of cash transactions for retailers can range from 4.7% to 15.3% due to various expenses such as cash theft, labor costs associated with managing cash, and increased work hours required to deposit cash into bank accounts. As a result, instead of promoting cash transactions, retailers are attempting to reduce their costs associated with interchange fees by falsely claiming that it would benefit consumers.

Shortly after the Dodd-Frank debit card amendment was passed, banks, particularly small community institutions that serve underserved communities, suffered significant losses and had to make up for them. Debit rewards programs were virtually eliminated, and banks passed on losses to consumers by discontinuing free checking accounts and introducing new and/or higher account fees.

How  retailers’ push for credit card routing mandate threatens consumer protections and small banks.?

Major retailers are now pushing for a routing mandate to be extended to the credit card market, which would effectively dismantle the current interchange system that generates approximately $50 billion in revenue. These funds are utilized to support consumer protection tools and systems, travel insurance, and credit rewards programs that millions of Americans rely on to finance their vacations and trips. 

If the bill were to be reintroduced and passed, it would result in significant revenue losses for banks, particularly community banks and credit unions, and they would be compelled to reduce or eliminate many of the benefits and safeguards that we cherish.

As travel and credit card rewards expert Brian Kelly, the founder of The Points Guy, pointed out, if the bill were to become law, consumers would lose access to rewards, purchase protections, and fraud protections, while retailers would reap the benefits.

Supporters of the bill may cite the small bank exemption included in the original Durbin Amendment as a solution, claiming that this proposal may even help small banks. However, a 2017 Federal Reserve study discovered that routing mandates had negative consequences for both regulated and exempt financial institutions. 

“From an economic standpoint, the results demonstrate that competition among companies can create an industry-wide response even for a policy that only targets a specific group of companies.”

How CCCA is a threat to Travel rewards and Nevada’s economy?

The Credit Card Competition Act (CCCA) has the potential to harm Nevada’s tourism industry by eliminating travel rewards programs that attract visitors to destinations like Las Vegas, Lake Mead, and Lake Tahoe. If consumers lose their rewards and travel benefits, hotels, casinos, entertainment venues, and small businesses that depend on tourism will suffer. Ordinary Nevadans will end up paying higher prices for these losses while large retail companies reap the benefits.

Other countries, such as Australia, have implemented policies similar to the CCCA and have experienced negative consequences. Australian consumers now pay hundreds of dollars in account fees for rewards cards that were previously free or almost free, and rewards card fees increased by as much as 77 percent, while the value of rewards points fell by nearly 25 percent.

The CCCA would cause consumers to lose valuable rewards programs and bear higher costs, benefiting big box stores at the expense of ordinary Americans. Therefore, Congress should reject policies like the CCCA that would harm consumers and Nevada families.

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Rajdeep Banerjee:

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