Updates on actions by the Federal Reserve, the Consumer Financial Protection Bureau and the US Senate to address credit card fees.
The credit card processing industry is the subject of ongoing legislation, and regulation focused on fees paid by merchants and consumers.
Recent developments of note include, The Federal Reserve extending the comment period for its proposed debit card interchange fee reduction proposal, a cap introduced by the Consumer Financial Protection Board on late fees paid by consumers, and the announcement of Senate hearings on credit card competition.
Comment Period for Proposed Debit Card Interchange Fee Reduction is Extended
In January, the Federal Reserve announced that it is extending the public comment period on its proposal to lower debit card interchange rates by an additional 90 days. The public comment period will now end May 12, 2024.
According to the Fed it is extending the comment period at the request of multiple commenters to provide additional opportunity for interested parties to consider the proposal and prepare comments. Groups including the American Bankers Association, The Clearing House and the Bank Policy Institute requested an extension of the comment period.
In addition to extending the comment period, the Fed has made additional data available to the public to assist those commenting on the proposed new methodology for determining the base component of the interchange fee cap.
Proposal Details
In November 2023, the Fed published a proposal that would lower the debit card interchange fee cap by about 30% because its data indicates that debit-card issuer costs have declined in recent years. It also proposed updating the interchange fee cap every other year going forward, without public comment, by directly linking the fee components to data from the Board’s biennial survey of large debit card issuers
The Fed said the proposal could have mixed results on consumers. Merchants might pass savings on to cardholders, but banks might increase fees on debit cards and/or deposit accounts.
A final vote by the Board of Governors of the Federal Reserve will be required to change the cap.
For more detail on the Fed’s proposal see the Verisave blog: Important Legal and Regulatory Developments Regarding Interchange Fees. To read the Fed’s press release announcing the extension of the comment period see: Press Release from Federal Reserve.
CFPB Finalizes Rule to Cap Credit Card Late Fees at $8
On March 5th, the Consumer Financial Protection Bureau (CFPB) finalized a federal rule to cap credit card late fees at $8 a month, unless an issuer can prove it needs to charge more to cover its actual collection costs. The rule only applies to large issuers that have more than one million open accounts, but it is expected to cover 95% of outstanding credit card balances.
The new rule is expected to go into effect by June 1st.
Banking and trade groups oppose the new rule and are expected to file lawsuits in an attempt to block the measure. The US Chamber of Commerce has already announced that it intends to sue.
Some opponents assert that the rule will hurt consumers’ credit scores because it will cause more consumers to pay late. Other opponents say the rule is unfair because consumers who pay their bill on time will be subsidizing those who pay late. For more information see these articles from The New York Times and CNN.
US Senate to Hold Hearing on Credit Card Competition
Dick Durbin (D-IL), Chair of the Senate Judiciary Committee has requested that the CEOs of Visa, Mastercard, United Airlines, and American Airlines testify at a hearing on credit card competition. The hearing will be held on April 9, 2024.
In June 2023, Durbin along with along with Senators Roger Marshall, M.D. (R-KS), Peter Welch (D-VT), and J.D. Vance (R-OH) and US Representatives Zoe Lofgren (D-CA) and Lance Gooden (R-TX), introduced the Credit Card Competition Act of 2023. Following the announcement of the hearing, Senators Josh Hawley (R-MO) and Jack Reed (D-RI) signed on as co-sponsors. To date, the bill remains stalled in the Senate Banking Committee and the House Financial Services Committee.
In the press release announcing the hearing, Senator Durbin alleges the aggressive opposition of Visa, Mastercard, American Airlines, and United Airlines is a factor that has prevented the CCCA of 2023 from advancing, adding that American Airlines and United Airlines “..have become credit card companies that fly planes.” Other observers note that since the CCCA of 2023 was introduced, a number of issues have been consuming Congress’ attention, including the House speaker crisis, avoiding a shutdown of the federal government, and aid for Ukraine and Israel.
The CCCA of 2023 seeks to drive down merchant fees by increasing competition among US credit card networks, weakening Visa’s and Mastercard’s market dominance. It directs the Federal Reserve to issue regulations covering issuing banks with over $100 billion in assets. Under the proposed regulations, these banks will not be allowed to restrict the number of networks on which an electronic credit transaction may be processed to less than two unaffiliated networks, at least one of which cannot be one of the two largest networks. Merchants will have the right to choose the network through which their payments are processed.
Opponents of the bill assert that it will impose new costs on consumers and community banks, pose security risks and end credit card rewards programs. One of their key arguments is that retailers will not pass the proceeds of any fee reduction on to consumers. As evidence, they point to a 2014 study by the Federal Reserve Bank of Richmond which found that in response to the 2011 Durbin Amendment that capped interchange fees on debit cards, only 2% of merchants lowered their prices while 23% increased them.
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Verisave is a third-party cost-reduction firm specializing in merchant accounts and credit card processing fees.
Verisave is not a payment processor, and is not affiliated with any processors, card brands, or banks.
Verisave has more than 20 years of experience optimizing and monitoring the credit card processing industry.