Great Lakes Wire

The Michigan Bankers Association (MBA) chief policy officer said that bank customers' private data would be at risk if pending federal credit card regulations became law.

The bill, S. 1838, or the “Credit Card Competition Act” (CCCA, S. 1838), originally sponsored by U.S. Sens. Richard Durbin (D-Ill.) and Roger Marshall (R-Kans.) would require banks to offer merchants at least two network options, one of which cannot be Visa or Mastercard, for processing credit card transactions. Opponents to the bill argue that if given the choice, retailers would likely choose cheaper, less secure networks for processing transactions, thereby exposing consumers to increased securities and fraud risks.  

"While we respect Senator Marshall and the other supporters of this bill, they are not being straight with the American people," Patricia Herndon, chief policy officer of the MBA, told Great Lakes Wire. "This bill will hurt consumers by ending credit card reward programs and putting their credit card data at risk."

"It will hurt community banks because any changes in routing requirements for the larger institutions will simply get passed down to small banks," said Herndon. "That’s what happened after the first Durbin amendment. It’s fiction to suggest we won’t be affected."

The bill applies to credit cards what a similar measure in 2010, often referred to as the “Durbin Amendment,” applied to debit cards. The 2010 measure was a requirement of the “Dodd–Frank Wall Street Reform and Consumer Protection Act.” 

A 2014 George Mason University study found that the 2010 “Durbin Amendment” led to a 50% reduction in the number of “fee-free” accounts offered by banks between 2009 and 2013, and doubled average monthly fees on “non-free” current bank accounts. 

The study also said the measure resulted in an increase of 1 million "unbanked" Americans in the year after the measure was enacted. 

Herndon's concerns over credit card reward programs are shared by Marci Collier, managing director at Airlines for America (A4A) who told Great Lakes Wire in August that the CCCA could put these programs at risk. Collier's group released a report showing that more than 181,000 travelers used credit card reward points to visit Michigan in 2022.

The report said that 181,273 visitors used credit card reward points to visit the state in 2022, which supported 2,299 Michigan jobs and had a total economic impact of $276.3 million.

These numbers were compiled via a survey of A4A’s member companies. 

Glenn Grossman, the Director of Research at financial advisory firm Cornerstone Advisors, concurred with Herndon that the bill could also lead to an increase in credit card fraud. 

“If the CCCA were to be approved, the routing of credit card transactions would move from a ‘single pipe’ to ‘multiple pipes’ of data flowing from merchants to issuers,” Grossman told Federal Newswire.

“Today, card issuers depend on the networks to profile and identify fraud. They see all the transactions on their network and have developed fraud detection capabilities that would not be possible in a fragmented structure the CCCA would create,” Grossman said.

Grossman added that Visa has invested billions on fraud detection.

“The investment builds trust and in return consumers use their credit cards,” said Grossman. "Zero liability means something to consumers. With the CCCA, it is possible that promise is gone."

In a report released in July 2023, “The True Impact of Interchange Regulation: How Government Price Controls Increase Consumer Costs and Reduce Security,” Grossman wrote that studies show 79% of consumers choose credit cards as a payment option because of their data security.

Grossman said that, under the legislation, credit card authorizations would be allowed to flow across many “pipes” which would eliminate much of the “fraud fighting value that Visa and MasterCard have implemented.”

The bill would not require new networks to provide fraud detection, Grossman explained.

“It is expected these new networks would rather just route data, not ensure the authorization is legitimate. It is a fraudster’s dream come true!” he said.

Herndon said the MBA has reached out to both of Michigan's U.S. Senators to let them know of the group's opposition to the bill. She said that Sen. Gary Peters (D-Mich.) voted against the original "Durbin amendment" and that the MBA is "unaware of any change in his position."

The bill is currently pending in the U.S. Senate Committee on Banking, Housing, and Urban Affairs.