The Senate Judiciary Committee held a high-stakes hearing to address the explosive rise in credit card ‘swipe’ fees, which surged to a record $172 billion in 2023, crippling American small businesses and putting additional strain on consumers. The hearing, held on November 19, came as these fees—the second-largest operating expense for merchants—continued to escalate, eating into already thin profit margins for small retailers during the critical holiday shopping season. With the cost burden growing by the day, lawmakers remain under intense pressure to act and introduce reforms that could lower costs for millions of businesses and families across the country.
Key Data and Overview:
Swipe fees have reached record highs, totaling $172 billion in 2023, marking a sharp increase from last year’s $160.7 billion and doubling over the past decade. Visa and Mastercard credit card fees alone have nearly quadrupled to $100.8 billion since 2010, further amplifying the financial burden on businesses and consumers.
This surge in fees is straining small businesses nationwide, who face these charges as their second-largest expense, right after labor. According to CMSPI, the real costs may be even higher, reaching $224 billion, adding roughly $1,700 per year to the average family’s expenses. As small businesses scramble to absorb these costs, there’s growing urgency for action in Washington.
Context of the Issue:
At the heart of the debate are Visa and Mastercard, which together control 80% of the credit card market and set swipe fees in a centrally coordinated manner. Critics argue that the current system is inherently anti-competitive, blocking alternative networks that could offer lower fees and better security. As swipe fees soar, small businesses are increasingly trapped in a system that leaves them with little room to negotiate or control costs. With Visa and Mastercard refusing to appear at hearings or engage in discussions about meaningful reforms, the pressure mounted for lawmakers to step in
Senate Hearing and Legislative Context:
The Senate hearing on November 19 was chaired by Senator Richard Durbin (D-Ill.), a key proponent of the Credit Card Competition Act (CCCA). This bill, co-sponsored by Senator Roger Marshall (R-Kan.), is seen as a critical attempt to introduce competition into the payments market and bring down swipe fees. The CCCA would require banks with assets over $100 billion to allow transactions to be processed over at least two unaffiliated networks, such as NYCE, Star, or Shazam, in addition to Visa and Mastercard. If passed, this legislation could save businesses and consumers more than $16 billion annually by fostering competition in fees, service, and security.
Impact on Small Businesses and Consumers:
The relentless rise in swipe fees is taking a heavy toll on small businesses and families alike. According to Doug Kantor, a member of the Merchants Payments Coalition (MPC) and General Counsel for the National Association of Convenience Stores, the current system is unsustainable. “These excessive swipe fees are wreaking havoc on American families and small businesses,” he said. Kantor called out the credit card giants, Visa and Mastercard, for their refusal to appear at hearings or support legislative reforms. With costs escalating, businesses are now being forced to pass those costs onto consumers, and this trend is expected to continue unless lawmakers act quickly.
Proposed Solution: The Credit Card Competition Act (CCCA):
The Credit Card Competition Act aims to fundamentally reform the payments market by requiring large banks to process transactions over at least two unaffiliated networks, offering merchants more choice and competition. This change could introduce lower fees and better security, benefiting businesses and consumers alike. The legislation would also exempt community banks and nearly all credit unions, focusing the reforms on large financial institutions that dominate the market. If passed, the CCCA could save businesses and consumers up to $16 billion annually, addressing a growing crisis in the payments industry.
Outlook and Expert Analysis:
With the holiday shopping season now in full swing, merchants are facing increasing pressure to control their costs. According to MPC’s Doug Kantor, Congress needs to act fast. “Once lawmakers hear the facts, Congress needs to quickly pass this landmark pro-consumer legislation,” he said. Supporters of the CCCA argue that it will not affect consumer rewards programs or transaction security but will instead provide much-needed competition, giving merchants the ability to reduce fees while maintaining high standards of service and security.
Conclusion and Call to Action:
The November 19 Senate hearing was a defining moment for the credit card payments system in the U.S. As swipe fees continue to rise, the stakes are higher than ever for small businesses and consumers. The CCCA offers a real solution—one that could bring much-needed relief to businesses struggling with rising costs. But time is running out. Congress must act quickly to ensure that this much-needed reform becomes a reality before small businesses and consumers bear the brunt of even higher fees in the year ahead.
Original article source: “Senate Judiciary Committee to address rising credit card “swipe” fees” published by Mass Market Retailers on [Nov. 12, 2024].