The article “Credit Card Act a Threat to Community Banks” by Steve Gunderson and Ron Marshall, published on July 11, 2024, dives deep into the potential adverse effects of the proposed Credit Card Competition Act (CCCA) on community banks in Montana. These financial institutions are lifelines for small towns and rural areas, offering essential financial services tailored to local needs, supporting economic growth, and fostering community development. However, Gunderson and Marshall argue that this crucial support system might be undermined by the introduction of the CCCA, which proposes a routing mandate meant to increase competition in the credit card industry.
The Impact on Interchange Revenue
Revenue Loss and Its Ripple Effects
A key component of the Credit Card Competition Act is the “routing mandate,” which would allow retailers to route transactions via alternative payment networks other than the current major players. While this might appear to promote competition at first glance, Gunderson and Marshall highlight that this change could significantly diminish the interchange revenue that community banks rely on. This revenue is vital for offering lines of credit to consumers and small businesses. The projected revenue loss for rural banks due to the CCCA could range from $5 to $10 billion. This substantial financial hit would force many community banks to raise interest rates and increase fees on credit cards in an attempt to recover lost income. Such measures could inadvertently exclude between 10 and 15 million Americans, particularly those in underserved and rural areas, from accessing the financial system.
Real-world Parallels: The Durbin Amendment
The authors draw a significant parallel between the proposed Credit Card Competition Act and the earlier Durbin Amendment, which capped debit card interchange fees. Implemented over a decade ago, the Durbin Amendment led to unintended consequences such as reduced services like free checking accounts and cashback options at ATMs. More alarmingly, it resulted in an increase in the unbanked population by one million. Gunderson and Marshall suggest that a similar outcome is expected if the CCCA is implemented. Instead of lowering consumer costs, the routing mandate would likely see any savings absorbed by large retailers rather than passed on to consumers. Furthermore, consumers might lose billions of dollars in rewards points while facing higher costs through increased interest rates and card fees.
The Broader Implications
Adverse Impact on Communities
Community banks are not merely financial institutions; they are an integral part of the local ecosystems in small towns and rural areas. By diminishing these banks’ revenue through the proposed routing mandate, the CCCA would jeopardize the essential role these banks play in maintaining local economic stability. The loss in interchange revenue could result in community banks being unable to offer the same level of financial services, which would disproportionately affect smaller communities that rely heavily on these banks. The reduction in access to lines of credit and other financial products could stall local economic growth and development, further deepening the divide between urban and rural financial access.
Critique of Consumer Cost Savings
Gunderson and Marshall also challenge the purported consumer cost savings promised by the proponents of the Credit Card Competition Act. They contend that the Durbin Amendment serves as a cautionary tale, wherein expected savings did not materialize for consumers. Instead, large retailers reaped the benefits, leaving consumers to deal with the downsides. The authors stress that under the CCCA, future consumer costs could rise due to lost rewards benefits, higher interest rates, and increased card fees. Rather than achieving the intended effect of lowering consumer expenses, the CCCA would likely end up burdening consumers further while simultaneously harming community banks.
A Call for Informed Policymaking
Advocating for Stakeholder Dialogue
Gunderson and Marshall advocate for a nuanced approach to policymaking that involves dialogue among policymakers, community bankers, industry experts, and consumer advocates. They argue that the rush to implement the CCCA overlooks the complex ecosystem in which community banks operate. A one-size-fits-all policy like the CCCA fails to consider the unique roles that these banks play in their communities. The authors call for a comprehensive understanding of the potential repercussions and encourage a collaborative approach to crafting regulations that genuinely benefit both banks and consumers.
Rejecting the CCCA
In the article “Credit Card Act a Threat to Community Banks,” authors Steve Gunderson and Ron Marshall explore the negative implications of the proposed Credit Card Competition Act (CCCA) on community banks in Montana. Published on July 11, 2024, the piece emphasizes that these financial institutions serve as crucial lifelines for small towns and rural communities. By providing tailored financial services, they support economic growth and foster community development. However, Gunderson and Marshall contend that this important support system may be at risk due to the introduction of the CCCA. The act proposes a routing mandate designed to enhance competition within the credit card industry. This mandate could inadvertently burden community banks with additional regulatory compliance costs and operational challenges, potentially diminishing their ability to effectively serve local needs. The authors warn that such changes could weaken the vital role community banks play in sustaining the economic and social fabric of rural areas in Montana, ultimately threatening the prosperity of these regions.
