This op-ed by Kwon Atlas appeared on Colorado Newsline on August 21, 2023.
Big-box stores and their lobbyists are trying to meddle with our wallets, again.
Right now, they are pushing to pass the Credit Card Competition Act of 2023, a bill that would make credit less accessible to our marginalized communities and give big-box stores a payday. Congress was able to shut this bill down when it was introduced in 2022. As the director of the Montbello Building Wealth Center, I am encouraging Coloradans to pay attention to this issue and talk to their congressperson and senators.
To understand the harm CCCA is going to cause, we can look back about 13 years ago when a similar debit card policy passed. In 2010, a near-identical policy called the Durbin Amendment succeeded in bringing routing mandates to the debit card market. Routing mandates helped drive down interchange rates (the rates merchants pay to process electronic transactions) so that retailers could save money.
Big-box stores saw immediately lower interchange rates and have since raked in $106 billion in extra revenue.
The policy is responsible for redistributing more than $23 billion directly from consumers to retailers like Target and Walmart over the last decade. That’s because, first and foremost, big-box stores hoarded their savings instead of using them to lower prices, and consumers got nothing. A Federal Reserve Bank of Richmond study in 2014 observed that 77 percent of retailers failed to lower prices and 21 percent raised prices after the policy went into effect.
Prices and inflation continue to crush Colorado families, and this would do nothing to lower prices for consumers. Rather, it would make it harder for families to use credit cards to pay for everyday needs.
Meanwhile, three-fourths of local credit unions and banks lost money and banks everywhere raised fees, raised minimum balances, and cut back on free checking. Researchers at George Mason University reported that over 1 million Americans, primarily low-income, lost their bank accounts completely after these changes made banking more expensive. They also estimated that the Durbin Amendment, “has saddled lower-income consumers with $1 billion to $3 billion per year in higher out-of-pocket costs.”
CCCA will have similar devastating effects on consumers. Just like last time, routing mandates will trigger big losses for our local financial institutions that issue credit cards, forcing them to cut down on no-fee credit cards, raise fees, and raise interest rates. They’ll also cut back on cash back, rewards, and other credit card benefit programs, worth $68 billion per year to American consumers.
Of course, this is going to hit low-income Coloradans the hardest, given that those fee hikes and high-interest rates will make a much bigger dent on their wallets than our more affluent residents. Credit will be less accessible and more expensive to struggling families. Economists in 2021 estimated that 10-15 million Americans would be kicked out of the credit system if Durbin Amendment policies are extended to credit cards.
CCCA’s sponsors claim that our credit unions will be exempt, but that promise is meaningless. The Durbin Amendment of 2010 also made an exception for credit unions and small banks, but research shows that it failed. A 2017 Federal Reserve study reported that the amendment created, “an industrywide response even for a policy that only targets a specific set of firms,” meaning the supposedly “exempt” institutions got hurt.
Prices and inflation continue to crush Colorado families, and this would do nothing to lower prices for consumers. Rather, it would make it harder for families to use credit cards to pay for everyday needs. Coloradans deserve better.