The CCCA Won’t Harm Card Issuers’ Ability to Fund Rewards Cards, MPC Says

The latest battle in the war over the proposed Credit Card Competition Act has focused on the question whether the legislation would cut rewards and other benefits for cardholders.

Citing research from the consulting firm CMSPI, the Merchants Payments Coalition, a lobbying group for sellers, argues that passage of the CCCA will have minimal effect of card issuers’ ability to continue funding credit card rewards. But the Electronic Payments Coalition, an issuer group, redoubled early Tuesday on its argument that the bill would strip issuers of the funds needed to support rewards. “CMSPI falsely claims that margins on credit card transactions are high enough to sustain rewards programs, even if interchange revenue were to fall,” the group said in a statement.

Widely backed by the retailer lobby, the CCCA would seek to control merchants’ credit card acceptance costs by requiring that issuers give sellers a choice of networks for processing. If one network is Visa, the other can’t be Mastercard. The bill, which was reintroduced this year after failing to win passage in 2022, would apply to the 32 banks with $100 billion or more in assets.

While CMSPI acknowledges that card issuers would see an average 37-basis-point reduction in interchange revenues on Visa and Mastercard transactions if the CCCA is passed, the consulting firm says consumers would incur, at most, a less than 0.10% drop in rewards benefits. CMSPI’s projections are based on data from Australia, where card swipe fees were capped at 0.8% in 2003.

“Based on the experience of Australia, a 37-basis-point drop in interchange would imply a 9.71-basis-point reduction in average rewards,” the report says. “Bringing this back to the six credit card issuers analyzed, CMSPI estimates that consumers would incur at most a less than 0.10% drop in rewards. Moreover, these six issuers maintain 30% margins on interchange transactions— more than sufficient margin to maintain current reward levels were average credit interchange fees to fall 37 basis points.”

CMSPI estimates passage of the legislation will save merchants at least $15.2 billion annually from increased competition for credit card processing.

Not surprisingly, card issues and merchants are divided over the impact of the proposed legislation, with opponents such as the EPC arguing that “historical evidence, demonstrated through myriad academic studies, shows that the proposed credit card routing mandates will likely lead to a drastic reduction of rewards programs.”

MPC Executive Committee member and National Association of Convenience Stores general counsel Doug Kantor contends the argument that passage of the CCA will hit cardholder rewards is a scare tactic aimed at getting consumers to pressure legislators to defeat the bill.   

“This seems to be a throw-the-spaghetti-against-the-wall approach and see what sticks,” Kantor tells Digital Transactions News. “Every industry has competition for business and there is no reason why one segment [of the card business] needs special protection.”

Kantor argues that when consumers and legislators realize the CCCA will not negatively affect credit card rewards, the bill will pass. “It’s always interesting to see what new fiction of the day will be spun by opponents of the legislation,” he adds.