COLORADO SPRINGS, Colo. — Lines are being drawn as the battle against credit card swipe fees continues in the nation’s capital. A U.S. Senate bill could alter the landscape of transactions ion Colorado and in turn affect rewards programs.
Giant retailers like Target and Walmart, the National Restaurant Association, and some small businesses support the legislation; but others, like travel groups and airlines, have come out against it.
In Colorado, a tourism group is now warning that if passed, the credit card industry will lose rewards programs like airline points, cash back, and hotel points, causing tourism in the state to drop off.
The U.S. Tourism Economy Alliance recently released a survey that shows more than 70% of Americans with rewards credit cards would reduce travel spending if their rewards were eliminated. It’s a dire — and somewhat buzzworthy — warning for one of Colorado’s most powerful economic industries.
WHAT IS THE CREDIT CARD COMPETITION ACT?
Democratic Senator Dick Durbin of Illinois introduced the Credit Card Competition Act of 2023 (CCCA).
According to his office, “the Visa-Mastercard duopoly controls over 80 percent of the U.S. credit card network market.”
With their 2-3% charge per transaction, his office said Visa, Mastercard and their card-issuing banks generated $93 billion in credit card fees in 2022.
Revenue from swipe fees is passed to issuing banks, which utilize the money towards rewards perks like airline miles and hotel points.
The intention of the bill is to create more competition within credit card networks and break up the stronghold that Visa and Mastercard have in the industry.
“There's basically a big network that pays your bill right away. So basically, there's an intermediary that covers that cost, and then eventually your credit card company covers the cost, and then you pay the credit card,” Joe Craig, director emeritus of the University of Colorado at Colorado Springs Economic Forum, explained. “And they charge a fee for this service. And they're basically two corporations that do this; Visa and MasterCard. And they have a certain amount that goes into the fee. You don't see that fee. The vendor is the one that pays that fee for having the access to that.”
Giving retailers the option to choose between more than one network means businesses would likely choose the cheaper option. As of now, small retailers may add in the fees to purchases as a “transaction fee” or they might urge customers to pay cash to avoid that 2-3% extra charge.
“Anytime you can lower your cost, it's good, right?” Craig said. “As a business, you'd love to lower your costs. A big question that's kind of still out there is ‘Will those lower costs get passed on to consumers?’”
Durbin’s bill has added bipartisan co-sponsors since introduction, but he’s still pushing for a floor vote.
At the end of March, Visa and Mastercard settled a 20-year legal battle over interchange rates. In the settlement, the companies agreed to cap their swipe fees for five years, pending court approval.
The settlement caused some like the Electronic Payments Coalition, a leading group against the CCCA, to suggest the new legislation was no longer needed.
But Sen. Durbin issued a statementthat he will press forward with the bill.
“Today’s news solidifies that it is time to pass my bipartisan, bicameral legislation—the Credit Card Competition Act—to enhance competition between credit card networks and ultimately lower costs for small businesses and consumers,” he said in the statement.
“We need to bring real competition to the credit card industry. My bill ensures that the Visa-Mastercard duopoly ends their price gouging tactics that disproportionately hurt American families and small businesses.”
HOW COULD IT IMPACT TOURISM?
The U.S. Tourism Economy Alliance (USTEA), a project formed to campaign against the bill by the Electronic Payments Coalition (EPC), released a recent survey it conducted, which outlined their dire predictions should the legislation pass.
70% of Americans with rewards credit cards would reduce travel spending if their rewards were eliminated, the survey data concluded.
In Colorado, 73% of respondents have rewards cards and 70% of Colorado residents “would lose access to points they say helped them book travel they otherwise could not afford.”
The survey focused on enabling middle-class travel and how those rewards card users often utilize airline rewards to offset travel costs and take trips they otherwise couldn’t afford.
“The big thing with this program is what it does to add more uncertainty into the whole credit card and points reward system,” Jim Felton, a Colorado-based tourism and travel consultant, said. “85% of the people in this country that have a credit card, have a rewards component to it. And as we can tell by the growth trends in tourism in Colorado, it seems to be working pretty well.”
Felton pointed to recent Colorado tourism data from the Office of Economic Development and International Trade in 2019 (OEDIT).
“In 2019, Colorado attracted 86.9 million visitors who spent a record $22.3 billion,” the OEDIT said.
Tourism is considered one of the strongest economic drivers in Colorado.
Felton said he’s worried the bill will create the unintended consequence of eliminating credit card rewards travel programs and in turn bring down Colorado tourism numbers.
Sen. Durbin has criticized the money spent against his bill by groups like the EPC and said that claims it would kill rewards programs is “patently false.”
Data from Open Secrets showed the EPC spent over $3 million lobbying Congress in 2023.
The USTEA surveyed 2,000 people online from Dec. 13, 2023 through Jan 12, 2024. USTEA said it also collected an unspecified number of additional survey responses from residents in 20 states including Arizona, Colorado, Florida, Hawaii, Nevada, New York and Texas for “statistically meaningful state-level comparisons.”
HOW COULD IT IMPACT SMALL BUSINESS?
But is the prospect of losing credit card rewards worth the impact these fees have on small business owners? That’s the question posed by Peri Bolts, co-owner of Eclectic Co., which has locations in downtown Colorado Springs and in Old Colorado City.
“Credit card fees are just kind of a baked in loss for us. It can be 3%. American Express can be even higher than that,” Bolts, whose business eats the cost of transaction fees, said. “We've looked at all kinds of options. And it's really a no win, right? Like, either we lose. Or our customers lose. And it's something that we haven't found a great solution for yet.”
Other operators may force customers to pay the transaction fee or place signs urging cash over card, but Bolts said they aren’t at that point yet.
She said it depends on the time of year, but overall, interchange fees cause her to lose thousands of dollars every month.
“It is really squeezing small business. So yes, you might lose the rewards and these hyper-incentivized cards; but at the same time, is it important to keep small business around?” Bolts said. “I'm definitely in favor of the market kind of creating some natural competition there.”
