Changes to Credit Card System Hurts Consumers

Dade County Federal Credit Union began in 1939 with $135 in a cigar box. We now serve 120,000 members in the Dade County area and have a low-income designation that enables us to offer special products and services to members in need. My team and I work every day to live up to the trust placed in us, because credit unions succeed when their members succeed. Turning our members’ financial dreams into reality is our purpose.

The Credit Card Competition Act of 2022 puts all of this in jeopardy.

Here’s the stakes. Credit unions and banks largely absorb the costs for compromised credit cards and fraudulent purchases. We rely on retailers to pay a small fee, typically 2 percent of a transaction, to help defray our losses.

Big-name retailers are now asking Congress to let them choose their credit cards payments processors, under the guise of promoting competition, falsely claiming it would lower costs for consumers.

The financial services sector wasn’t fooled the first time when the 2010 Durbin Amendment placed price caps on interchange fees for debit cards, creating a big handout for retailers. The Richmond Fed found only 1.2% of retailers lowered prices after capturing savings from the Durbin Amendment. Credit unions and banks, on the other hand, had to cut back on free checking accounts and other low-cost services to recoup costs.

We certainly aren’t looking to be shamed by the Credit Card Competition Act this time around. Allowing big box retailers to opt for the cheapest, often least secure, payments processor would make credit cards less secure, more expensive to obtain, and limit access to those who most need it.

Reduced interchange income means less time and fewer resources dedicated to protecting our members from fraud, issuing replacement cards, and investing in the latest security.

It would force us—and other financial services providers around the country—to raise the bar to qualify for credit cards. Our credit card programs are part of our members’ financial planning, as many of them work to build rewards or points that they can use as they please or rely on credit to pay for emergency expenses.

And it would put their personal privacy and security at risk, as merchants can choose from the least secure network, as long as it’s the cheapest.

We understand that replacing cards and staying up to date on the latest security technology is the cost of doing business. But I’m having trouble understanding why we’re disrupting a system that already works.

We’re putting this in jeopardy for what? To benefit the biggest retailers at the expense of access to affordable credit.

This isn’t a pro-consumer solution.

Credit unions, on average, pay just under nine cents per transaction to shield our members from fraud. It doesn’t sound like a lot, but it quickly adds up when you’re handling thousands of transactions a day. And most fraud occurs from data breaches on the merchants’ side of the house.

Dade County Federal Credit Union received more than 125 merchant data breach alerts last year alone, affecting more than 6,300 accounts. We also managed another 4,900 card-related fraud cases.

We re-issued more than 11,200 cards in 2021, and we’re just one institution in the entire financial services system.

I’m not interested in political haggling in Washington, D.C. I’m concerned with the very real, negative impact this bill would have on our members and our ability to meet their needs. Our community needs access to safe, affordable credit, especially as the cost of living continues to rise.

Maybe we should look back at the failed promises of Durbin debit legislation and fix those misguided policies rather than applying them to the credit card system.

Our members—and consumers around the country—deserve better.

George Joseph is President/CEO, and Board Treasurer of Dade County Federal Credit Union. He has 33 years of experience working with financial institutions, 25 years with credit unions.