Marshall credit card plan would hurt local banks, consumers

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

It is important that every Kansan understands that this bill represents government intervention each time they use their personal credit card.

Most people don’t think twice when they use a credit card and I, as just one of many Kansas bankers, want to keep it that way.

The safety and convenience of using a credit card benefits individual consumers and small businesses alike.

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

But as we all know, cheaper isn’t 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,

In addition, the popular reward programs attached to the credit cards you use today could go away if cheaper routing rails are chosen by a merchant.

Just imagine that you use your credit card to make a purchase, thinking that you will be receiving points, only to find out that the store where you bought the item diverted your purchase to a different routing rail and so no points were awarded to you.

This bill will take that decision out of your hands and put it into a merchant’s.

Unfortunately, we have seen the results of a similar government mandate on a different type of payment card recently.

Ten years ago, Sen. Durbin successfully led a similar charge in Congress to impose a price cap on interchange revenue banks and credit unions receive on debit cards.

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

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

The Federal Reserve’s own economists did a study following implementation of the original Durbin mandate and found that only 1% of merchants lowered prices for consumers, in contrast to 22% of merchants that raised prices.

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

It should also concern all credit card holders that this legislation is being pursued even though there currently is no alternate card routing network available as called for in 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’ve read the claims by Senators Marshall and Durbin that their mandate will exempt community banks, but that is a misunderstanding of how the credit market works – there is no operational or practical business way to keep the market from driving this mandate to every bank that wants to offer credit cards to its customers.

If passed, this misguided proposal will make it harder for banks to ensure data security and fraud protection, which not only places private consumer financial data at risk, but also hurts small businesses that rely on those secure transactions to give customers peace of mind.

Over the course of the past three decades, I’ve learned first-hand how competition drives innovation in the marketplace. That’s as true for banking products as it is for anything else. However, our ability to offer useful and popular services to consumers is what allows Kansas community bankers to compete – not just against one another, but against large national banks as well. Under the guise of competition, the Marshall-Durbin bill would do little to help consumers, but it would be a gut punch to community banks like mine which 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 truly wants to promote competition, protect consumers and support small businesses, he should withdraw his support for the Marshall-Durbin bill and join the Main Street financial institutions across Kansas in demanding the repeal of the original Durbin mandate.

Julie Huber is Executive Vice President of Strategic Initiatives for Equity Bank in Wichita, and is president of the Kansas Bankers Association’s Board of Directors.