Marshall credit card plan would hurt local banks and consumers

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Patrick Semansky

PA

Meaning. Roger Marshall, R-Kan. and Dick Durbin D-Ill, introduced Senate Bill 4674, legislation expanding government routing mandates to the credit card market.

It is important for every Kansan to understand that this bill represents government intervention every time they use their personal credit card.

Most people don’t think twice about using a credit card and I, as one of many Kansas bankers, want it to stay that way.

The security and convenience of using a credit card benefits individuals and small businesses alike.

The Marshall-Durbin bill puts that at risk by requiring merchants to choose how card transactions are routed so they can choose a cheaper payment rail to help lower their costs.

But as we all know, cheaper is not necessarily better. There is a cost to maintaining the safest and most secure routing networks and a cheaper network could put your personal financial information at risk,

Additionally, the popular reward programs attached to the credit cards you use today could disappear if cheaper routing rails are chosen by a merchant.

Just imagine you use your credit card to make a purchase, thinking you’ll be awarded points, only to find out that the store where you purchased the item has diverted your purchase to a different routing rail and no points has been assigned to you.

This bill will take that decision away from you and put it in the hands of a merchant.

Unfortunately, we recently saw the results of a similar government mandate on another type of payment card.

A decade ago, Senator Durbin successfully led a similar charge in Congress to impose a price cap on the exchange revenue that banks and credit unions receive on debit cards.

Durbin’s original mandate also required banks and credit unions to offer at least two routing networks for debit card transactions.

At the time, traders claimed that this would allow them to lower prices to consumers. What was the result of this government mandate? This made checking accounts and debit cards more expensive for your local bank and virtually eliminated debit card rewards for consumers.

The Federal Reserve’s own economists conducted a study following the implementation of Durbin’s original mandate and found that only 1% of traders lowered prices for consumers, compared to 22% of traders who raised prices. price.

As a community banker for 30 years, I firmly believe that history will repeat itself if the Marshall-Durbin legislation is passed and applied to credit card transactions. This legislative mandate will make it more expensive for your bank to offer credit cards, and in most cases banks will be forced to reissue credit cards capable of meeting this new dual routing mandate.

All credit card holders should also be concerned that this legislation is being continued even though there is currently no alternative card routing network available as provided by this legislation. This proposal will bring chaos and confusion to the credit card market and consumers will find themselves at the center of the fray.

I have read the claims of Senators Marshall and Durbin that their terms of reference will exempt community banks, but that is a misunderstanding of how the credit market works – there is no operational or practical way to prevent the market from impose this mandate on every bank that wants to offer credit cards to its customers.

If passed, this flawed proposal will make it harder for banks to provide data security and fraud protection, which not only puts consumers’ private financial data at risk, but also hurts the small businesses that matter. on these secure transactions to reassure their customers.

Over the past three decades, I have learned firsthand how competition drives innovation in the marketplace. This is as true for banking products as for anything else. However, our ability to provide useful and popular services to consumers is what allows Kansas community bankers to compete, not only against each other, but also against large national banks. Under the guise of competition, the Marshall-Durbin bill would do little to help consumers, but it would be a blow to community banks like mine who would be forced to pay for a new federal mandate that restricts our ability to serve our credit card customers’ wants and needs.

If Sen, Marshall is serious about promoting competition, protecting consumers and supporting small businesses, he should withdraw his support for the Marshall-Durbin bill and join Main Street financial institutions across Kansas in demanding the repeal of the mandate. original from Durbin.

Julie Huber is executive vice president of strategic initiatives for Equity Bank in Wichita and chair of the Kansas Bankers Association board of directors.