Rhetoric over Credit Card Competition Act heating up

Senator Richard Durbin, D-Ill., is on a tear. Last week he took to the Senate floor to lash out at Visa Mastercard and airline companies, which he accused of being in cahoots in trying to convince Americans that his proposed bill, the Credit Card Competition Act, will eighty-six rewards programs. Not so, the senator said.

"Employed by the credit card and airline industries, critics have accused me of jeopardizing Americans' airline rewards with my idea of competition. That is just not true," the senator insisted. "Modern day airlines have become credit card companies that also happen to own airplanes. And it is their deceptive practices that threaten American's ability to redeem rewards they have earned."

Sen. Durbin's remarks came on the heels of a new report from the Consumer Financial Protection Bureau alleging that airlines and banks often switch up the terms of rewards programs, leaving consumers with less value and little recourse. The report was released in conjunction with the Department of Transportation after Sen. Durbin asked the two agencies to investigate reports about unfair and deceptive practices in airline frequent flyer and loyalty programs.

"Credit card companies promise upfront benefits for signing up and using their rewards cards, but often bury complex terms in the fine print for using the rewards," said CFPB Director Rohit Chopra in issuing the report.

Chopra added that the CFPB has made it a mission to find ways to "protect people's points, stop bait-and-switch scams, and promote a fair and competitive market for credit card rewards programs."

Introductory credit card offers have existed since the earliest years of rewards programs, but the prevalence and number of these programs has climbed dramatically, the CFPB report pointed out. In fact, about one in 10 rewards earned by consumers are now linked to sign-up bonuses, according to CFPB.

Bipartisan support

Durbin is the architect of the Credit Card Competition Act. That bill, which includes co-sponsors from both sides of the political aisle in both the Senate and House, would require the largest banks (those with over $100,000 in assets) to enable the credit cards they issue to be routed over at least two networks, only one of which can be owned by Visa or Mastercard.

The Merchants Payments Coalition, which represents many merchant groups, has been waging a public relations campaign in favor of the legislation. It claims competition brought on by the legislation could save merchants and their customers $16.4 billion a year.

Opponents of the bill point to numerous potential downsides, including the elimination, or severe curtailment of card-based rewards programs.

"[A]nyone who has traveled through the airport here in D.C., watched TV, or used the Internet has probably seen the ads claiming, 'Dick Durbin wants to take away your credit card rewards'," the senator noted in his speech to fellow lawmakers. "The problem is these breathless claims are false. Rewards programs will be alive and well long after the Credit Card Competition Act becomes law."

Durbin claims banks, the card companies and other opponents of the bill have spent $51 million lobbying against it.

Lobbying efforts aside, industry experts point to other problems with the legislation—problems that became apparent following enactment of the Durbin Amendment to the Dodd-Frank Act, which capped interchange for debit cards issued by banks with more than $10 billion in assets.

For example, issuance activity jumped at banks that weren't covered by debit caps, said Elaina Smith, CFO at Secure Bancard LLC. Smith also noted that many regional EFT networks, which proponents of the Credit Card Competition Act say could serve as alternatives to the Mastercard and Visa networks, have, themselves, been raising the fees paid by banks and processors using those networks.

Card companies, airlines snub Durbin

Durbin, who as Democratic Whip is the third most powerful Democrat in the Senate, is also chair of the Senate Judiciary Committee. Last month, he asked the chiefs of Visa, Mastercard and several airlines to appear before that panel to discuss the legislation and explain their opposition to it. All declined.

"If these CEOs are willing to discuss the Credit Card Competition Act with Wall Street investors and lawmakers behind closed doors, they should be willing to answer questions before the Senate Judiciary Committee and the American public under oath," Durbin said.

Click www.youtube.com/watch?v=UngSVSyzBy4 to view Durbin's entire speech on the Senate floor.

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