Golden State Today

A spokesperson for the California Credit Union League (CCUL) said her organization is opposed to proposed credit card regulations pending in the U.S. Senate because she said they will cost consumers money and could lead to an increase in credit card fraud.

The “Credit Card Competition Act” S. 1838, would require banks to offer merchants at least two network options, one of which cannot be Visa or Mastercard, for processing credit card transactions. 

“While proponents of S. 1838/H.R. 3883, the Credit Card Competition Act (CCCA), say it will help to reduce consumer costs, we are in active conversations with both lawmakers and community leaders to oppose it because it will ultimately cost consumers money,” Karla Davis, the CCUL vice president of communications and marketing, told Golden State Today. 

Davis said the bill would increase the risk of credit card fraud and theft.

“The CCCA proposes to modify the credit card interchange system,” she said. “The existing credit interchange fees are used by credit unions to protect against fraud and even then, only cover a fraction of the cybersecurity costs that credit unions incur.”

“If the CCCA goes into effect as-is, it would essentially create space in the market for unreliable credit card networks,” said Davis. “This leaves consumers vulnerable to cybercriminals, resulting in increased costs related to data theft.

Her comments mirror those of Glenn Grossman, the director of research at financial advisory firm Cornerstone Advisors, who said the proposed regulations could lead to an increase in credit card fraud.

“If the CCCA were to be approved the routing of credit card transactions would move from a ‘single pipe’ to ‘multiple pipes’ of data flowing from merchants to issuers,” said Grossman. “Today, card issuers depend on the networks to profile and identify fraud.”

“They see all the transactions on their network and have developed fraud detection capabilities that would not be possible in a fragmented structure the CCCA would create,” Grossman said. 

The bill applies to credit cards what a similar measure in 2010, often referred to as the “Durbin Amendment,” applied to debit cards. The 2010 measure was a requirement of the “Dodd–Frank Wall Street Reform and Consumer Protection Act.” 

That measure, like S. 1838, was originally sponsored by U.S. Sen. Richard Durbin (D-Ill.)

A 2014 George Mason University study found that the 2010 “Durbin Amendment” led to a 50% reduction in the number of “fee-free” accounts offered by banks between 2009 and 2013, and doubled average monthly fees on “non-free” current bank accounts. 

The study also said the measure resulted in an increase of 1 million "unbanked" Americans in the year after the measure was enacted. 

Davis also referenced a 2015 survey of retailers completed by the Federal Reserve Bank of Richmond found that “just 1% of retailers lowered prices” following the passage of the 2010 “Durbin Amendment.”

She said this showed that Sen. Durbin’s promise of lower prices for consumers “largely went unfulfilled.” 

Neither U.S. Sen. Alex Padilla (D-Calif.) or Laphonza Butler (D-Calif.) have gone on record in support of or opposition to the bill, which is currently pending in the U.S. Senate Committee on Banking, Housing, and Urban Affairs.

Founded in 1933, the CCUL represents 260 credit unions in California. It functions as a trade association, providing advocacy, compliance support, education, and relevant information to its member credit unions. The league operates under the parent organization, the Credit Union National Association, and engages with legislative, regulatory, and public affairs to promote the interests of its members. Headquartered in Ontario, California, the league also focuses on community involvement and financial education initiatives.