Norbert Michael, Vice President and Director of the Center for Monetary and Financial Alternatives at the Cato Institute, expressed concerns that the Credit Card Competition Act would negatively impact innovation and competition while increasing regulatory control in the payments industry. This statement was made in an op-ed on March 14.
Michael's remarks were in response to a new alliance between the Merchants Payments Coalition and the Payment Choice Coalition, which supports the Credit Card Competition Act. The legislation has faced criticism from free-market advocates due to its proposed routing requirements on credit card transactions. Michael argues these changes could reduce innovation and consumer choice while empowering regulators in ways that might adversely affect crypto firms supporting the bill.
"Implementing routing requirements or price controls (indirectly or directly) will not promote competition. It will harm competition. Those policies will not promote innovation or expand consumer choice. They will hinder innovation and shrink consumer choice," said Norbert Michael.
The bipartisan Credit Card Competition Act (CCCA), introduced in 2023, mandates that large credit card-issuing banks enable at least two unaffiliated payment networks on their cards, aiming to reduce merchant fees and enhance competition. Proponents argue it could lower costs for merchants and consumers, while critics warn it might diminish credit card rewards and investments in security. According to Congress.gov, the act seeks to address the dominance of major networks like Visa and Mastercard in the payment processing market.
The U.S. payments sector is experiencing increased regulatory scrutiny. The Federal Reserve's Regulation II sets standards for debit card interchange fees and routing, aiming to ensure fees are reasonable and proportional to transaction costs. Additionally, the Consumer Financial Protection Bureau (CFPB) has proposed rules to enhance competition and consumer protection in payment systems.
According to Michael, "So, that's how far the crypto industry has come. They started out just pushing for a new regulatory framework so that crypto and stablecoins could compete with other payments technologies. And now they're actively pushing for the Credit Card Competition Act, legislation that would unambiguously harm credit card companies and other payments firms."
According to Bankrate, the Credit Card Competition Act could adversely affect consumers by diminishing credit card rewards programs such as cash back and travel benefits, which are often funded by interchange fees. The reduction in these fees might lead banks to cut back on such rewards. Additionally, the act could compromise data security; major networks like Visa and Mastercard invest heavily in secure payment systems, and routing transactions through less-established networks might expose consumers to higher risks. Furthermore, the act could limit access to credit, particularly for consumers with lower credit scores, as banks might tighten credit offerings in response to decreased revenue from interchange fees.
Norbert J. Michel serves as Vice President and Director of Cato Institute's Center for Monetary and Financial Alternatives, focusing on financial markets and monetary policy. Before joining Cato, he was Director for Data Analysis at The Heritage Foundation, contributing to publications on financial regulation. Michel holds a doctoral degree in financial economics from the University of New Orleans and a bachelor's degree in finance and economics from Loyola University. His extensive experience positions him as a leading expert in monetary policy and financial regulation.