Will This Bill Make It Cheaper to Use Credit Cards?

Your credit cards cost you money, even if you don't carry a balance.

These days, it's rare that I pay cash for anything. It's just so easy to whip out my credit card, tap to pay (I have gotten so spoiled by contactless credit card technology), and get on with my day. Plus, some credit cards offer cash back or other rewards. I'm in good company; according to the Bureau of Consumer Financial Protection, 175 million Americans have at least one credit card. Paying by credit card is faster and more secure than using any other payment method, but it isn't the cheapest way to pay, because of credit card processing fees.

These fees generally aren't charged directly to you, the credit card user, but they are charged to merchants who accept credit card payments. Per research from The Ascent, these fees can range from 1.15% + $0.05 to 3.15% + $0.10 in interchange fees plus an extra 0.14% to 0.17% in assessment fees. Visa and Mastercard, the two largest payment networks, actually raised their merchant fees in April 2022 -- not such a surprise, given that the cost of nearly everything has gone up.

Increasingly, merchants are passing the additional costs on to you in some form; you may have noticed some of your local restaurants adding fees to use your credit card, or shopped in small stores that have a purchase minimum (say, $10) for you to be able to pay with a credit card, for example. But the Credit Card Competition Act of 2022 is seeking to save merchants credit card processing fees. What will the impact be for you?

The Credit Card Competition Act of 2022

In July 2022, a new bipartisan bill was introduced in the U.S. Senate. It seeks to increase competition by requiring banks with more than $100 billion in assets to use at least two affiliated networks to process credit transactions. One of them will have to be outside the Visa or Mastercard network. The intention is to save merchants money on credit card processing, and ultimately save consumers money as well.

Potential pros

Saving retailers and consumers money sounds pretty good, right? Especially for smaller merchants, this bill becoming a law could be huge for their bottom lines. As a recent NPR story noted, the charge of around 2% that retailers have to pay for credit card processing seriously eats into their profit margins, which may be razor-thin to begin with. And as Leon Buck of the National Retail Federation stated, there are more than just two companies capable of processing credit card transactions, and they could do so more cheaply than Visa or Mastercard.

Potential cons

But security concerns figure into credit card processing as well. Mastercard's chief product officer Craig Vosburg notes that the cheapest payment processors may not have the same security measures as big companies like Visa and Mastercard. And Greg Mesack of the National Association of Federally-Insured Credit Unions (NAFCU) points out that the loss of revenue from credit card processing fees could hurt consumers in another way. Credit card issuers use those fees to pay for rewards programs, and since those are one of the biggest perks that come with using credit cards, this would be a big loss for the majority of Americans who do.

Mike Calhoun of the Center for Responsible Lending disputes this, however, and notes that while swipe fees pay for some rewards programs, credit card issuers also make a lot of their money on consumers paying annual fees, interest charges, and late fees. Plus, rewards programs are how credit card companies attract and keep customers, so those are unlikely to go away entirely.

What happens now

The bill will likely not become law during the current legislative session, which ends Jan. 3, 2023. But it will be interesting to see if it eventually passes; it has bipartisan support. The Credit Card Competition Act of 2022 could change Americans' relationships with their credit cards -- for better or for worse.