Pub. 11 2022 Issue 5

Chairman’s Message: Why Are Community Banks Concerned About The Durban-Marshall Bill?

This is a fair question since the Durbin-Marshall proposal explicitly exempts banks under $100 billion. Unfortunately, community banks have been explicitly exempted from similar legislation before, only to see the negative impact of the proposal become a reality for both community banks and their customers. That’s exactly why virtually every financial service-related trade group representing banks and credit unions of all shapes and sizes are strongly opposing the so-called Credit Card Competition Act.

The last thing a banker wants is an upset customer, especially community bankers that might just find themselves sitting next to that customer at the high school football game on Friday night or two rows behind them at church on Sunday. Almost everyone I know has some sort of a credit card that affords them rewards points or cash back. When my parents traveled some years ago, if mom owed you money, you better accept her Southwest Airlines miles as payment. All of us, including our customers, expect that when we use rewards or a cash-back credit card, we will receive credit for that transaction in the form of points or cash back. If the Durbin-Marshall bill is adopted, each of us and our customers will no longer be in charge of who processes credit cards. Merchants will have control, and they will simply choose the lowest cost card routing processor and the rewards and cash back consumers are accustomed to will be gone. Whom do you believe consumers will be upset with when the credit cards we issue them are no longer benefitting them with rewards points? I’m guessing they’ll be upset with their issuing bank, even though we would no longer have any control over who processes their credit card purchases.

While losing their rewards points may be the most obvious loss to customers, that’s not what will harm them most. This Durbin-Marshall bill does nothing to address or improve credit card rail processing security. The consumer will also have no idea who has their confidential information – until they begin receiving fraud alerts from their credit reporting agency. Most of the time, when someone’s credit is hacked, they can trace it back to a specific transaction. They then call their credit card provider, who tracks back to the last transaction before the fraudulent activity started. However, with a mandate that requires two credit card rail possibilities on every transaction, there will be no starting point to track that down. This concern was expressed many months ago to Senator Marshall and well in advance of the introduction of the Durbin-Marshall mandate bill. Regrettably, there was no attempt to address this serious concern.

EXAMPLE: Consider the multiple possibilities of five simple credit transactions with five merchants, each offering two (could be more as the bill mandates two, but does not limit to two) rails, one being Visa (card issuer) and five other processors as the second rail. Those five transactions would have at least six different possible rails. Let’s assume one of those processors was hacked, the consumer’s data is stolen, and the credit card is maxed out. Yet, the customer has no idea how to trace down the original point of fraud because none of the transactions were processed through the same network, and possibly none went through Visa — the original card issuer.

Policymakers must consider the exponential losses and challenges to the card payments system as consumers struggle to figure out when a fraud event started and how much more difficult it will be to catch fraud early when multiple networks are at play. We’ve all received a call/text while checking out at a merchant (real-time) asking us to confirm the transaction as valid or fraudulent. That ability will cease if an alternative network is in use. I firmly believe this bill will harm the consumer in ways even the co-sponsors of this legislation don’t fully understand. Unfortunately, as bankers, we’ll be left cleaning up the fraud mess with our customers.

This proposal also does little to benefit small businesses. While, in theory, they will be able to add a lower-cost processor to their system, most small businesses simply don’t have the manpower to research processors and hopefully choose the best option. Furthermore, if a consumer is impacted by fraud and they are able to chase down the point of fraud origin to a particular small business, will that small business owner even know or be willing to share which processor they used to clear the transaction? And how will small businesses react when their customers realize they aren’t receiving their rewards points or cash back when shopping with them? Do you see the reputation risk to small businesses if this dual routing mandate is adopted?

Virtually every Kansas bank has retail customers who are enduring challenges, including coming out of a pandemic, inflation costs not seen in decades, and supply chain issues. As bankers, we want our retail customers to succeed, but it seems counter-productive for any member of Congress to advocate for increased regulation and a government mandate, all in the name of promoting competition. Thomas Jefferson once wrote, “The Government that governs best … governs least.” I tend to agree with President Jefferson.

Historically, if there was excess profit in a specific industry, then a free-market economy encourages competitors to spring up to increase competition and lower prices. There is currently NO LAW which prohibits other companies, including large merchants, from creating payment rails and competing. If there is excess profit to be had, companies are and should remain free to create a new payment rail. However, there is no need for the government to create laws designed to mandate competition. I hope I’ve made the case that doing so will simply harm consumers and many, many small businesses as well.

I personally want to make sure that every Kansas banker is aware that Senator Durbin and Senator Marshall are now trying to get their proposed credit card routing mandate attached to other bills working their way through Congress. Their latest attempt is to amend the language contained in the Credit Card Competition Act to the National Defense Authorization Act (NDAA), which is required to be adopted annually by Congress. I ask that you join me in educating our fellow bankers, our customers and our elected officials of the harm and risk associated with the Durbin-Marshall mandate. If we don’t educate everyone now and continue our strong opposition to the Durbin-Marshall mandate, I’m concerned we will be stuck cleaning up the mess this legislation will create.

Shan Hanes