WASHINGTON, DC— The Wall Street Journal Editorial Board recently published a scathing op-ed criticizing the Durbin-Marshall Credit Card Bill and Senator Dick Durbin’s effort to push the harmful legislation through a lame-duck session of Congress.

The Editorial Board noted, “The Illinois Senator is pushing a bill in Congress’s lame-duck session that would shift the cost of processing card transactions from retailers to consumers” and wrote the bill “redistributes income from cardholders to [corporate mega-stores like Home Depot and Kroger].” The editorial concluded by calling the Durbin-Marshall Credit Card Bill “crony capitalism masquerading as consumer benefit.”

The full article is copied below and can be viewed HERE. 

Dick Durbin’s Plan to ‘Fix’ Credit Cards

Rewards points could vanish if Congress caps transaction fees.

By the Wall Street Journal Editorial Board
November 20, 2024

Dick Durbin has a knack for rehashing old mistakes, which is why he wants to stomp on the credit-card business. The Illinois Senator is pushing a bill in Congress’s lame-duck session that would shift the cost of processing card transactions from retailers to consumers. If it passes, rewards programs could vanish as they did with debit cards.

The Credit Card Competition Act would require card issuers to let payments be processed on at least two networks, including at least one other than Visa or Mastercard. It exempts issuers with less than $100 billion in assets, but more than 83% of cardholders would be covered by the new rule.

Mr. Durbin is using his last days as Judiciary Committee chairman to promote the bill, and at a hearing Tuesday he described it as a cure for inflation. “There is a hidden contributor to the high prices we all pay on everything from furniture to eggs: credit card swipe fees.” The pitch is to reduce card networks’ pricing power on behalf of squeezed consumers.

It’s another Democratic attempt to pin inflation on supposedly greedy businesses. President Biden blamed oil companies, Vice President Harris named grocery stores, and both sought aggressive measures to counter alleged price gouging. Voters rejected that approach along with Ms. Harris. Yet there’s no end of Democratic efforts to scapegoat business as an excuse for more political control over the private economy.

Mr. Durbin’s credit-card plan would backfire on consumers. The networks charge retailers fees on card swipes and rebate a share of the revenue to the card issuers, which then direct some of the money into rewards programs to attract new customers. Retail giants like Home Depot and Kroger would love a race to the bottom in such fees because the bill redistributes income from cardholders to retailers.

Predicting the effects of a new fee structure might make a fascinating business-school case had Congress not run this experiment before. Mr. Durbin made the same arguments for his cap on debit-card fees more than a decade ago, and consumers have been the undisputed losers.

Debit-card rewards programs have nearly disappeared since the Durbin amendment, part of the 2010 Dodd-Frank law that cut retailers’ fees nearly in half. Stores didn’t pass the savings to customers, while the banks that issue the cards found other ways to recoup revenue.

A 2019 Penn Law School analysis found that banks offset their losses by charging higher fees for checking accounts. The Federal Reserve has proposed further lowering the Durbin amendment cap on debit card swipe fees, and JPMorgan warned that this would result in fewer people getting free checking.

The new credit-card mandate would be a boon for Discover, which is based in Mr. Durbin’s home state and is trying to compete with Visa and Mastercard. Its debit cards are also notably exempt from the Durbin amendment.

This is crony capitalism masquerading as consumer benefit.

Other countries have capped transaction fees on credit cards with the same result. The Reserve Bank of Australia in 2012 reviewed its limits on swipe fees, finding that “reward points and other benefits earned from spending on credit cards have become less generous while annual fees to cardholders increased.”

Credit-card regulation has a populist appeal to legislators who like to ignore economics. Mr. Durbin’s latest effort has support from GOP Sen. Roger Marshall of Kansas. They want to brag to constituents about taking on the banks. Then they hope voters won’t notice who’s responsible when other fees rise and their rewards vanish.