If you are like the millions of people who enjoy racking up rewards points on your credit cards, you might want to pay attention to what’s happening on Capitol Hill. Congress could soon severely curtail or even eliminate the availability of credit card rewards systems as we know them.
Reps. Peter Welch (D-VT) and Lance Gooden (R-TX) recently introduced the House companion bill for the Credit Card Competition Act, similar to the Senate version submitted in July by Sens. Dick Durbin (D-IL) and Roger Marshall (R-KS).
GOP ATTORNEYS GENERAL DEMAND CREDIT CARD COMPANIES REVERSE NEW GUN PURCHASE CODE
Proponents of the legislation argue that Visa and Mastercard hold a “duopoly” on the market and thus, the federal government needs to “protect consumers” by restricting successful businesses from operating and propelling less tested, less trustworthy operations into the marketplace. They claim that somehow restricting the marketplace will allow for increased competition and the byproduct of these controls will somehow provide relief for consumers currently experiencing inflationary pressures.
But we are better off with market-determined rates and truly open competition like we have now.
U.S. major credit card companies are able to offer a slew of perks and benefits to their customers. When we think of perks, we mostly think of travel miles, cash-back rewards, airport lounge access, and hotel stays, but there are a lot more perks that the average consumer takes for granted. U.S. credit card companies are able to offer benefits, such as guaranteed payments, a sort of insurance against fraud or products that do not live up to the seller’s advertised standard; insurance for damage to a rental car; and sometimes even roadside assistance free of charge. These same benefits are almost unheard of on the same level in other countries. It is no secret that many, if not all, of these benefits would disappear if the Credit Card Competition Act were to be implemented.
In 2011, when the Durbin Amendment to the Dodd-Frank Act took effect, many debit card rewards and perks were almost immediately removed. According to a study conducted by Pulse in 2012, just two years after the Durbin Amendment took effect, 50% of debit card issuers had ended their rewards programs within the first year and another 18% in year two. The original Durbin Amendment has failed to deliver on its promise to protect and improve consumer experience, and almost none of the promised savings have been passed down to the consumer, while they have actually had to endure a loss of benefits and increased costs for other banking services.
Congress should not make the same mistake it made the first time around. Price controls have never worked and often cause more unintended consequences than any measurable benefit. Congress should not pick sides in a fight between retailers and financial institutions. Rather, it should work to ensure that both groups can meet the demands of their consumers fairly by ending the trade constraints that have hurt American retailers and their customers, supporting policies that help small retailers, and clarifying and making permanent the 2017 tax laws that can help larger retailers make long-term expansion plans and keep smaller retailers growing.
It can also help retailers and financial institutions by reining in the practices of states that have failed to bring their sales tax collection systems in line with the simplification requirements of the Supreme Court’s Wayfair decision and by addressing labor, energy, and infrastructure proposals that could raise costs for merchants.
If Congress simply gets out of the way, credit card companies and consumers alike will be better off.
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Alex Milliken is a policy and government affairs manager with the National Taxpayers Union, a nonprofit group dedicated to advocating sound tax and budget policy at all levels of government.
