Many so-called “travel bloggers” who rely on promoting credit card applications as a significant source of income have been creating a lot of noise through a plethora of articles about a bill — which was introduced on Wednesday, June 7, 2023 by four senators and two representatives of Congress of the United States — but will the Credit Card Competition Act of 2023 decrease surcharges by merchants?
Will Credit Card Competition Act of 2023 Decrease Surcharges By Merchants?
“The Credit Card Competition Act of 2023 would enhance credit card competition and choice in order to reduce excessive credit card fees”, according to this short summary of the Credit Card Competition Act of 2023 by Richard Durbin, who is one of the two senators of the United States who represents the state of Illinois. “It would require the largest credit-card issuing financial institutions in the country—those with assets over $100 billion–to enable at least two credit card networks to be used on their credit cards instead of just one, and at least one of those networks must be a network other than the Visa/Mastercard duopoly. In other words, after a transition period during which the Federal Reserve would write implementing regulations, the giant banks that issue the overwhelming majority of Visa and Mastercard credit cards would have to choose a second competitive network to go on each card, and then a merchant would get to choose which of those networks to use to process a transaction. This competition and choice between networks would incentivize better service and lower cost; in fact, for more than a decade, federal law has required debit cards to carry at least two debit networks and this requirement of a choice of debit networks has fostered increased competition and innovation in the debit network market and has helped hold down fees.”
Visa, Mastercard, American Express, and Discover are the four largest credit card networks which currently exist in the United States.
“Visa and Mastercard are known as ‘four-party’ networks; they act as agents for thousands of card-issuing banks and mandate the fees and terms that the banks receive from merchants for each transaction. Merchants have effectively no leverage to negotiate fee rates and terms in four-party network systems, because they cannot risk losing access to all the consumers served by Visa’s and Mastercard’s member banks”, according to Zoe Lofgren, who represents District 18 in California as a member of the House of Representatives of the United States. “Visa and Mastercard wield enormous market power in credit cards; according to the Federal Reserve, they account for nearly 576 million cards, or about 83% of general-purpose credit cards. Visa’s and Mastercard’s market power and network structure have enabled them to impose fees on U.S. merchants that are among the world’s highest, charging a total of $93 billion in U.S. merchant credit card fees in 2022. These fees include interchange or swipe fees which Visa and Mastercard require merchants to pay to issuing banks, as well as network fees that Visa and Mastercard require merchants to pay directly to them. Consumers ultimately pay for all of these fees in the price of the goods and services they buy.”
Parts of the media have claimed that this legislation will likely result in many banks ending the issuance of travel loyalty credit cards because the programs would become less lucrative due to lower revenue from transaction fees. Lodging companies and airlines could also see reductions in their revenues and causing them to increase airfares or room rates to offset fewer purchases of miles and points by those banks.
Meanwhile, an increasing number of merchants have been adding surcharges to the total bill of consumers in order to compensate for the fees, which range from 1.5 percent to three percent of the bill. Some fuel stations in the state of Georgia, for example, charge ten cents more per gallon for purchases using a credit card than purchases which are paid with cash or through a special debit card which is funded from the checking account of the customer. An increasing number of restaurants have been adding a surcharge of approximately three percent to the checks of patrons — sometimes without any advance notice or warning.
Final Boarding Call
As with most everything else, I do not believe that government intervention is the answer in this case. If passed as law, I do not believe this bill will be of much help — and will likely contribute adding unnecessary expense to a federal government which is already overly bloated. I do believe this law will do little more than further complicate matters and add unnecessary confusion.
First, I do not believe that if the bill successfully became law that it will ultimately help the consumer. The proposed legislation may help small businesses and companies that are moderately sized to save money; but I do not believe that those savings will be passed on to their customers in general.
Moreover, some of the credit cards which are relentlessly touted by those aforementioned “travel bloggers” do offer a good value — especially when the value of the benefits meets or exceeds the annual fee and any other costs to use the credit card — but the credit card holder must pay off the entire balance of the statement for each month in order for that person to fully realize those savings and benefits. Regardless, consumers should not lose those savings and benefits through no fault of their own by a law which is enacted by the federal government…
…and even if the bill is passed as law, an impact may occur in the frequent travel loyalty program industry; but I do not believe that credit cards which offer savings and benefits will completely disappear due to competition.
If a merchant charges me a surcharge simply for using a credit card — especially when I am not warned or notified about it in ample time beforehand — I will simply never patronize that merchant again. If that merchant truly needs the money to offset the fees that are charged by credit card companies, simply add it to the cost of the product or service that is provided so that I can arrive at an informed decision and the final bill is of no surprise to me.
In other words, natural forces of the free market — and not the federal government — should determine how business in the credit card industry is conducted in an ideal world.
Finally, I must disclaim that neither I nor The Gate With Brian Cohen benefit from successful approvals of the applications of credit cards by anyone — not even by one single cent over the course of almost 17 years.
All photographs ©2019, ©2022, and ©2023 by Brian Cohen.
