Credit Card Competition Act: What are credit card fees? | Opinion


Utah is home to some of the highest rates of credit card debt in the nation, landing among the top 20 states in terms of the amount of credit debt carried by residents, according to a new report.

The WalletHub survey found Utahns carry an average of $2,225 in credit debt. A separate report, meanwhile, showed the state’s average consumer debt is well over the national average at $114,293.

While worrisome, spiked credit balances are not exclusive to the Beehive State. Americans across the US are now borrowing more than ever, with credit user balances up $46 billion in the second quarter of this year. This 13% spike from 2021 is the largest year -over-year increase in two decades, underscoring the fact that Americans are borrowing more to contend with higher prices.

But inflation isn’t the only factor driving these higher costs.

A recent $1.2 billion increase in credit card swipe fees imposed by Visa and Mastercard is likely to increase the price of everything, from baby diapers to gas at the pump. These hidden fees jumped 25% last year to a record $137.8 billion for credit and debit cards combined, more than double the amount over the past decade.

For retailers, swipe fees are typically the most expensive operating cost after labor. An increase in these fees forces merchants like convenience or grocery store owners to raise prices in order to cover higher overhead costs. Because swipe fees are based on a percentage of the total transaction, Visa, Mastercard and big banks are making a killing off of inflationary prices.

Swipe fees have increased dramatically over the last several years due to the lack of competition in the credit card industry. Visa and Mastercard control 80% of the market, and they price fix the fees charged by the banks that issue their cards. Instead of competing to offer merchants the best fee rate, big banks force retailers that accept these credit cards to pay the centrally set fees. This take-it-or-leave-it practice has driven many business owners to court with accusations of antitrust violations.

Utah Sen. Mike Lee is paying attention. During a Senate Judiciary Committee hearing in May, Lee pressed Visa and Mastercard executives and described their price fixing as “anti-competitive cartel behavior.” Others, like ranking member Chuck Grassley, R-Iowa, said the fees “are eating into already-tight margins, especially for small business owners.”

Last month, Sens. Roger Marshall, R-Kan., and Dick Durbin, D-Ill., introduced bipartisan legislation to address this issue by bringing competition to the payments marketplace. The bill, named the Credit Card Competition Act, will require the largest banks in the nation to have more than one processing network for credit card transactions, allowing merchants to choose which network they’d like to use, thus forcing them to compete for the lowest swipe fee rate.

This means Visa and Mastercard will have to consider a merchant’s preference for lower fees — just like every other business must do when it sets the price of goods.

Notably, this rule will not apply to community banks. The bill excludes banks with less than $100 billion in assets, meaning smaller banks will have a greater opportunity to break into the credit card issuing market while big Wall Street banks will have to compete for customers . Considering no Utah bank comes close to this threshold, none of the local banks in our state will be negatively impacted by this legislation — but consumers in the state will still benefit.

With Utahns struggling with some of the highest credit card debt in the nation and businesses suffering under record inflation, it is imperative our leaders do all they can to deliver relief. Given Lee’s recent scrutiny of Visa and Mastercard, I am hopeful he will sign onto the Credit Card Competition Act to help drive down skyrocketed credit card fees.

Symone Hearst is a business development officer for the Banking and Credit Union Industry.

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