We all come across different changes in law, privacies or policies that can be either in our Favor or sometimes not- it is all dependent upon our thoughts or mentality on how we can take it. We are sure you must come across any such case now and then. Similarly, we are here to help you get information about one of the top news that has come upon the credit card competition act.
Now what is the Credit Card Competition Act? will this be helpful for consumers? If yes, on what grounds can it help? Many such different answers walk along with the Credit Card Competition Act.
So, here in this article, we will help you to determine complete information about it.
What is the Credit Card Competition Act?
There is no doubt that credit card is a necessity and has been a top priority as well. No matter if you are young or an adult, you tend to aspire to keep a credit card. It is beneficial because it lets cardholders proceed with transactions easily and pay later.
This way, cardholders get time to repay the amount along with its many rewards.
But when you are getting benefits, there is some of the other information that comes with it. This is related to credit cards, its charges and benefits probably- but relatively not what you think of.
So, to clear out this complete information let us help you.
The Credit Card Competition Act could bring changes- this could be the fees that merchants process. Looking at this the Credit Card Competition Act was reintroduced to the Senate- on June, 7 (after it failed to pass the Congress law).
The information came out by looking at the transactions made through credit cards in the U.S- but thanks to the proposed law. But what exactly does the act say?
Talking about the credit card competition Act is known as the bipartisan bill that would simply require credit card issuer with assets of over $100 billion says- this is to include the two processors on each card as well.
In turn, one would have to be part of the network and other than the Visa or MasterCard. In simple terms whenever a customer buys anything with the help of their credit card the merchant will be able to choose which of the two networks should be taken into consideration.
But what’s the funda behind the overall process?
The overall transaction has some amount of fees that go to the merchant- this is the credit card transaction or the swipe fees. This is usually the average fee of around 1.5 to 3.5%.
However, most of the swipe fees originally go to the credit card’s issuing bank- this is simply called interchange fees.
Accordingly, the fee cost merchant was around $126.35 billion and this was in 2022. This in turn facilitates, $5.76 trillion in credit card transactions (up to 20.2%)- from May 2021.
Currently, Visa and MasterCard have a duopoly, this is controlling over 80% of the credit card network. This means most of the consumer credit card operates on Visa and MasterCard.
However, the credit card competition act would command that the largest credit card-issuing financial institutions (mainly those with assets of over $100 million- enable at least two processes in use.
This would further create vast competition among the two and also other than credit card networks. This will lessen the fees merchants charge to overall facilitate the credit card payment.
If merchants pay the lower fees they could also lower the prices for goods and services. But that was all about merchants, how can it benefit consumers?
How Credit Card Competition Act will Benefit Consumers?
Consumers are those who do not have much of an impact when it comes to transactions. That is mainly because the choice of the card network to use- would belong to the merchant.
In this case, if your card is enabled to work – with both Visa and discover then the merchant would choose which one to use and easier as well. The choice is solely the part of the transaction.
But still, there are few areas where benefits can be obtained.
1. In the case of rewards
If we talk about rewards then everyone likes it and gaining them turns into cash. But these are majorly the flash points in bill debates. However, the credit card industry largely makes up for the fees with the help of these rewards.
This in turn means if interchanges get down then rewards will too.
But that was the case where opponents of the bill point to what happened to debit card rewards- after debit card interchange fees. Well, that would vanish the rewards points too.
The cap in the case of rewards was part of Dodd-frank street Reform and also the consumer protection act. This was passed in the wake of the great recession that majorly took in Oct 2011.
The act dealing with the cap is typically known as one of the Durbin amendments. Therein the interchange fees at 21 cents + 0.05%- the amount of the transaction. But talking about the early days the interchange fee was around 44 cents. Those were quite the hard changes that made.
The credit card competition act has no cap luckily and card networks would be able to charge whatever they wish they are suitable to go with. As we know this act only requires credit card issuers to enable multiple networks to process each card as easily.
Since credit card rewards are the biggest incentive that is delivered to the issuers. With the help of these customers do opt for the products they wish but you should have the desired points to make up things in your favour.
It has been found that if credit cards will no longer offer rewards points then the sale could be down. This will in turn have an impact on the credit card industry as well.
2. Access to credit card
Whenever there is a deduction in anything we have a diverse impact. The same is what happened with the revenue for card issuers in the credit card competition act. Moreover, the condition could also lead to credit card issuers being less willing to those who do not have a perfect or the desired credit score.
Since it is majorly the need at the time of issuing credit cards and in turn getting started to obtain the one desire. But things get fail when you do not own the desired requirement or fall towards it.
But there are financial institutions that are looking ahead to make the lives of people easier. The same is the case for people who have poor credit score and wants to adopt it.
In that case, if banks come up with any such plan then automatically things would turn out. However, talking about the credit card competition act CCCA does not hold the hard capping.
Also Read: High Limit Credit Cards for 650 Credit Score
3. Prices of services and goods
With the introduction of greater competition, different amendments are being made. But the greater competition we would say be good for consumers. The main reason because merchant could pass along their swipe fee savings in the form of lower prices. But eventually, there is no guarantee of this.
If anything happens like this then detractors will let you know as they are the right person to let you get informed.
4. Security of data
No doubt the security of data comes first, but what comes when credit card competition acts? Here adding smaller networks into the mix of processing credit transactions will helpful to increase security. The fact is known that only the big players in the market would let the security be tightened.
In addition, there has been a report that the reduction in the swipe fee revenue would reduce the funds as well. In this case, the bill supporter declares that greater competition tends to encourage greater innovation and would lead to improvement.
Impact of Durbin Amendments on Debit Card Marketplace
Talking about the Durbin amendments to the Dodd-Frank act of 2010 that was similar to legislation to contain interchange fees- in the debit card marketplace.
That’s the legislation’s cap on interchange fees on debit cards- did not apply to banks with total assets under $10 billion.
Accordingly, according to the 2014 study it was stated by the Federal Reserve, that the Durbin amendments led to the momentous reduction- in terms of interchanged income for the impacted banks.
Moreover, that particular bank was not able to make up for the lost income by directly shifting to credit cards. But banks here raised their income fees and thereby made up to 30% (of the lost income). On the other hand, banks also did not cut down the cost of their employees or shut down their branches.
The Bottom Line
Talking about the Credit Card Competition Act sole purpose was to let you know deep to this act. It combines interchange fees, profits from merchants, rewards, credit card issuers, or fees for consumers all of these are quite complex.
But if we say then the proponents of the CCC act would say it completely aims to increase competition – this is between the credit card networks and issuing banks. This means lowering the fees from the merchant side and in turn allowing them to pass on the savings directly to the consumers.
No doubt credit cards are the best to build a good credit score- for those who have poor credit. Usually, most of the customers take it for this purpose only. However, if you have a solid credit score then you can get anything – in terms of financial services. This usually covers all types of loans, facilities to rent and more.
However, talking about the Credit Card Competition Act 2023 directs to offer the network choice for easily processing debit card transactions. This is between the requiring banks and additional networks to process the credit card transactions.
This means it would give merchants some choices and lead to a network to compete based on interchange fees and security. Yet based on the past legislation in the debit card processing space we would say banks would also look for another source to make up for their losses. This could also have a consumer impact- yet in the form of lowering the rewards that come within credit card.
