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Credit card act a threat to community banks

by Steve Gunderson and Ron Marshall
| July 11, 2024 12:00 AM

Community banks are the lifeblood of many small towns and rural areas across Montana. They play a crucial role in supporting our local businesses, providing access to credit, and fostering economic growth within their communities. These banks have a deep understanding of the unique needs and challenges faced by their customers, allowing them to tailor their services accordingly.  

Unfortunately, we are quickly losing local and regional banks across the nation; this attrition is unsustainable.

Community banks have a vested interest in the success of the neighborhoods they serve. They are more than just financial institutions; they are partners in the growth and development of their communities and contribute to their overall well-being. As such, we are concerned about proposed regulations out of Washington D.C. that could impact Montana’s financial institutions.

We’re talking about the Credit Card Competition Act, which supporters claim will increase competition in the credit card industry by imposing a “routing mandate.” Unfortunately, the bill poses a significant threat to the survival and growth of Montana’s community banks. While the intention behind the legislation may be well-meaning, its consequences could be detrimental to these vital financial institutions and the communities they serve.

The Credit Card Competition Act seeks to introduce new regulations that would allow retailers to route credit card transactions over alternative payment networks, potentially bypassing the established and safe payment systems of major credit card companies. While this proposal may seem like a minor change to the current system, the bill fails to consider the disproportionate impact it could have on community banks and their ability to continue serving their communities.

Community banks rely on interchange revenue to extend lines of credit to consumers and small businesses in rural areas. However, the CCCA is expected to cost rural banks between $5 and $10 billion. When these banks inevitably start losing interchange revenue as a result of this bill, they will have no choice but to raise interest rates and increase credit card fees to make up for it. This will exclude between 10 and 15 million Americans, primarily from underserved and rural areas, from the financial system. Consumers could also lose billions of dollars in rewards points and see higher interest rates and increased credit card fees as a result of this bill. These are consequences Montanans can’t afford.

We’ve seen similar policies result in unintended consequences for consumers and community banks. Over a decade ago, Congress implemented the Durbin Amendment to place interchange fee caps on debit card transactions. The result was the loss of a revenue stream for banks which forced them to cut many services for their customers, including necessities like free checking accounts and perks like cash-back debit cards. This increased the unbanked population by one million Americans, most of whom were already in rural or low-income areas. We can expect to see something similar if Washington imposes new regulations on credit cards.

Moreover, the CCCA won’t lower costs for consumers. When Congress capped debit interchange fees, mega-retailers raked in over $106 billion dollars but did not lower costs for consumers, according to the Federal Reserve Bank of Richmond. There’s no reason to think we won’t see similar consequences this time around. The CCCA could also cost consumers billions of dollars in lost rewards, higher interest rates, and increased credit card fees.

Instead of recycling failed regulations from the past, policymakers should engage in open dialogue with community bankers, industry experts, and consumer advocates to craft policies that protect the essential functions of community banks. Additional regulations will not increase competition, and instead of helping consumers and our community banks, this bill will actually hurt them. It’s time to reject the Credit Card Competition Act.

Rep. Steve Gunderson represents HD 1 in Lincoln County.  Rep. Ron Marshall represents HD 87 in Ravalli County.  They serve on the House Business & Labor Committee.