Does Its Debut in the House Confer Momentum on Durbin’s Credit Card Legislation?

An effort backed by many of the nation’s major retailer trade groups to put a lid on credit card acceptance costs took a big step forward Monday with the introduction in the House of Representatives of the Credit Card Competition Act. The bill, launched in July in the Senate, seeks to control costs for merchants by requiring at least two networks for credit card transaction routing.

But while merchant groups celebrate the bill’s entry in the House as an encouraging sign that all or some part of it could become law, critics of the legislation argue its provisions will do anything but engender competition. Still, critics fret that, while it may take some time, the bill is more likely than not to become law.

As with the Senate bill, the House version was introduced by a bipartisan pair of lawmakers, Peter Welch, D-Vt., and Lance Gooden, R-Texas. Backers of the Senate version are Richard Durbin, D-Ill, and Roger Marshall, R-Kan. The bill echoes a law that Durbin steered through Congress more than a decade ago to put a damper on debit card acceptance costs. Because of his sponsorship, the bill ultimately became known as the Durbin Amendment to a much larger piece of financial legislation that ultimately became law, the Dodd-Frank Act.

Merchant groups generally greeted the House version of Durbin’s latest legislation enthusiastically, with the National Retail Federation releasing a statement that the development means the “pro-consumer legislation is rapidly gaining momentum in Congress.” Merchant groups are especially keen on the bill’s proposal that more networks be enabled to bid for credit card transaction routing, a business they see as under the thumb of Mastercard and Visa.

“Lawmakers from both sides of the aisle and both chambers of Congress are alarmed by how much skyrocketing swipe fees are driving up prices for consumers and recognize the need for competition,” said the NRF’s Leon Buck, vice president for government relations, banking and financial services, in a statement. “Swipe fees” is a term for the fees merchants pay processors to accept credit and debit cards.

Some payments experts see the House version as further evidence of a general movement toward more choice for merchants in how their card transactions can be routed and processed. “This is more momentum from a practical standpoint than we’ve seen before,” says payments consultant Steve Mott, a long-time critic of card-acceptance costs, in an email message. “So the key is not to overplay the merchant hand while letting [momentum] try to gain natural support. Credit competition is still a big hurdle, but the merchants are certainly not tilting at windmills.”

But others, including those who argue the legislation will end up doing more harm than good by interfering with market pricing, disagree with Mott’s assessment. “I would say Welch (Durbin) finding one Republican co-sponsor in the House and introducing the bill to mandate credit-card-routing choice for merchants doesn’t show material momentum,” says Eric Grover, proprietor of the consultancy Intrepid Ventures, in an email message. “Durbin and Welch are  … stroking the merchant lobby.”

Still, industry opponents of the legislation may not want to take too much comfort from Grover’s assessment. He warns the bill will likely move forward fairly soon in any case.

“The idea isn’t going to go away,” Grover says. “Durbin’s on a crusade against Mastercard and Visa. Moreover, his and Welch’s credit-card-routing-choice proposal can be framed as promoting more competition in credit cards, which will appeal to Republicans. And intervening in the payments market, notionally to make it work better, will appeal to many Democrats.”