Beginning in late 2022 and continuing into 2023, an unprecedented amount of scrutiny, from a variety of agencies, has been focused on the credit card industry. Here is an overview:
In October 2022, the US Federal Reserve Board finalized updates to the Board’s rule concerning debit card transactions. The updates specify that debit card issuers should enable at least two payment card networks to process all debit card transactions, including “card-not-present” transactions, such as online payments. The rule will go into effect July 1, 2023.
When the rule was initially issued in July 2011, solutions to broadly support multiple networks for card-not-present debit card transactions had not been developed. Since then, technology has evolved to address these barriers but some debit card issuers have not yet enabled at least two unaffiliated networks for merchants to choose between when routing such transactions.
Currently, the vast majority of online debit transactions are being routed through Visa’s and Mastercard’s networks.
In late December 2022, the US Federal Trade Commission (FTC) ordered Mastercard to end business tactics that it has been using to force merchants to route debit card payments through its network.
The FTC asserts that Mastercard has been using tokenization to block the use of competing card networks. Specifically, Mastercard’s policy requires use of a Mastercard-branded token when a cardholder loads a Mastercard debit card into an e-wallet. Since Mastercard does not provide token conversion services to competing networks for e-wallet transactions, it is impossible for merchants to route e-wallet transactions using Mastercard branded debit cards on a network other than Mastercard.
For more information see this Press Release from the FTC.
In January, Visa disclosed that the US Department of Justice (DOJ) requested more information regarding debit card practices, continuing an investigation launched in March 2021. Visa, which is cooperating with the investigation, said the inquiry is related to a potential violation of Section 1 (restraint of trade) or Section 2 (monopolization) of the Sherman Act.
Additionally, the European Commission told Visa it has opened a preliminary investigation into its incentive agreements with clients, according to Reuters.
Recently there has been increased scrutiny on debit transactions. In October 2022, the US Federal Reserve (the Fed) updated its rules to clarify that debit card issuers should enable at least two payment card networks (see above) to process all debit card transactions, including “card-not-present” transactions, such as online payments. Currently, the vast majority of online debit transactions are being routed through Visa’s and Mastercard’s networks.
A few weeks later, in December 2022, the US Federal Trade Commission (FTC) issued a complaint against Mastercard (see above) ordering an end to business tactics that Mastercard has been using to force merchants to route debit card payments through its network. The FTC alleges that Mastercard has been using tokenization to block the use of competing card networks
For more information see this PYMNTS.com article.
In February, the US Consumer Financial Protection Bureau (CFPB) proposed a rule to limit late fees on credit cards to $8 for a missed payment. Currently fees can be as high as $41, which the CFPB says far exceed the costs issuers incur to collect late payments. According to the bureau, this proposal could eliminate approximately $9 billion of the estimated $12 billion of credit card late fees that Americans pay annually.
The CFPB aims to implement the proposed rule by 2024 after collecting public comments. Congressional approval is not required for the rule to be finalized.
Card issuing banks are expected to mount legal challenges to the proposed rule.
This proposal is part of a broader push by the bureau to crack down on banking fees. President Biden said the idea of capping credit card fees is a “small idea” that is intended to build confidence in the government’s capacity to help Americans.
See this Wall Street Journal article for additional details.
According to a spokesperson, US Senator Dick Durbin (D-IL) plans to reintroduce the Credit Card Competition Act (CCCA), a bill which seeks to drive down merchant fees and reduce costs to consumers by increasing competition among US card networks. The bill failed to pass last year and experts believe the likelihood of it passing is even lower now that Republicans control the US House of Representatives.
Last July, Durbin and US Senator Roger Marshall (R-KS) co-sponsored the bill. In September, a companion bill was introduced in the House, co-sponsored by US Reps. Peter Welch (D-VT) and Lance Gooden (R-TX). Neither the US Senate nor the House bill had significant legislative support last year, and neither bill received a committee hearing.
See for additional details on the CCAA see this Verisave blog.
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.