Last month, the Senate approved a version of the so-called GENIUS Act, meant to regulate stablecoins, that will now move on to the House. However, getting the bill over that hurdle required purging not one but two amendments taking aim at an unrelated boogeyman: credit card companies. The bipartisan pair of populist Josh Hawley (R-MO) and avowed socialist Bernie Sanders (D-VT) introduced a provision capping credit card interest rates at a shockingly low 10 percent. Likewise, senators Dick Durbin (D-IL) and Roger Marshall (R-KS) tried to use the opportunity to push a longstanding and not-so-genius pet project of theirs: the deceptively named Credit Card Competition Act (CCCA).
The senators behind these amendments are certainly correct that they would deal a blow to the credit card industry. The changes would also be welcomed by big-box stores with massive market share and a high volume of credit card transactions. But the laws would also dramatically limit options for consumers, disproportionately impacting those with low incomes or bad credit, with no economic benefits to the average consumer. And while the amendments didn’t make it through this time — with all sponsors except Marshall voting “Nay” on the final GENIUS Act — their sponsors’ persistence suggests we will see them again soon.
“This legislation will provide working families struggling to pay their bills with desperately needed financial relief,” Sanders claimed when he and Hawley initially proposed their credit card interest amendment as a separate bill in February. But those who call for caps on interest should be careful what they wish for. More predatory products are here, and they are liable to fill in the space held by credit card companies. And that space will be wide: setting interest rates artificially low — lower than most personal loans — will make credit cards unavailable to consumers with low incomes or poor credit as they become too much of a credit risk. As alternatives crop up at higher costs to the consumer, surely populists like Sanders and Hawley will call to regulate those, too, effectively cutting out lower-income consumers from credit markets entirely.
Meanwhile, the Credit Card Competition Act promises to stick it to the big banks through different means, requiring them to use multiple payment networks to lower swipe fees, ostensibly passing merchant savings on to consumers. Any bank covered by the bill that uses the Visa or Mastercard network must also offer an alternative credit card network — and the only eligible ones in existence at the moment are American Express and Discover.
Dick Durbin has sporadically pushed the CCCA in the Senate since 2022, but has since earned the bill bipartisan legitimacy through his Republican co-sponsor, Roger Marshall. Durbin has used the amendment tactic in the past for similar financial legislation that might not have had broad support on its own. He attached an amendment regulating debit card swipe fees to the Dodd-Frank Act, passed by the Democrats’ wide but temporary congressional majority in 2010, on the premise that lower swipe fees for merchants would be passed onto consumers. The result? Merchants barely passed any price savings on to consumers, while banks increased fees to recoup their lost debit card revenue.
Financial companies are an easy target for demagogic politicians — look no further than Sanders’ declaration that “we cannot continue to allow big banks to make huge profits ripping off the American people.” While this anti-bank fervor is typical of Democrats, it’s frustrating to see politicians on the Right go along with what is essentially a price control. Roger Marshall has correctly noted in the past that minimum wage hikes don’t lead to broadly higher pay, but instead to fewer jobs for workers who don’t have the skills or experience for a higher wage. In a different application of the same principle, enforcing a price control on credit card swipe fees doesn’t mean there will be a utopia of low-rate revolving debt available to all consumers, but instead that financial institutions will only be willing to accept the risk of lending to the wealthiest or most credit-worthy consumers.
Ironically, industry developments suggest card networks are opening up. Discover Financial Services was acquired by Capital One in May. While some claim this is a sign of industry consolidation, it actually opens Discover’s closed payment network — previously only open to Discover-issued cards — to Capital One’s much bigger credit card issuance business. Capital One’s own investor pitch deck for the acquisition predicted it could add over $175 billion in purchase volume to the Discover payment network by 2027 — an increase of more than 30 percent on a non-Visa, non-Mastercard network. This doesn’t even take into account the potential growth of the network if opened to issuers beyond Capital One, opening another avenue of revenue for the company and improving options for consumers.
The fact remains that, for conscientious consumers, credit cards remain the most convenient and rewarding way to pay on the market. Potential regulatory intrusions on that market will either make credit cards less accessible to consumers, or leave us with credit cards, with greater penalties and fees but reduced rewards and protections. Lawmakers should reject attempts to score cheap political points by blaming credit card providers and allow real competition to improve payment options. Consumers should be wary of new alternatives that claim to be safer than credit cards.
