Show-Me State Times

The Defense Credit Union Council (DCUC) said that proposed federal credit card regulations sponsored by U.S. Sen. Josh Hawley (R-Mo.) could “jeopardize veterans financial security” and lead to increased credit card fraud risk.

The bill, S. 1838, or the “Credit Card Competition Act” (CCCA, S. 1838), originally sponsored by U.S. Sens. Richard Durbin (D-Ill.) and Roger Marshall (R-Kans.), would require banks to offer merchants at least two network options, one of which cannot be Visa or Mastercard, for processing credit card transactions. Opponents to the bill argue that if given the choice, retailers would likely choose cheaper, less secure networks for processing transactions, thereby exposing consumers to increased securities and fraud risks.  

“The primary issue with the CCCA is that it would mandate banks and credit unions to route credit card transactions through the lowest-cost networks,” Haleigh Laverty, communications specialist with the DCUC, told American Credit News. “This could expose transactions to increased fraud risks, as these networks often underinvest in security innovations.”

In a May 16, 2024 letter to members of the U.S. Senate, DCUC Chief Advocacy Officer Jason Stverak wrote, “If the Federal Government imposes price controls on interchange, credit card transactions will likely go over less secure, less reliable networks that do not provide a suite of rewards and protections for consumers.”

“This is why DCUC continues to advocate for stronger regulatory measures and urges Congress to reject legislation like the CCCA that could jeopardize veterans’ financial security,” said Laverty.

Glenn Grossman, the Director of Research at financial advisory firm Cornerstone Advisors, told Federal Newswire earlier this year that the bill could also lead to increased credit card fraud risk. 

“If the CCCA were to be approved, the routing of credit card transactions would move from a ‘single pipe’ to ‘multiple pipes’ of data flowing from merchants to issuers,” said Grossman. “Today, card issuers depend on the networks to profile and identify fraud. They see all the transactions on their network and have developed fraud detection capabilities that would not be possible in a fragmented structure the CCCA would create."

Grossman added that Visa has invested billions on fraud detection.

“The investment builds trust and in return consumers use their credit cards,” said Grossman. "Zero liability means something to consumers. With the CCCA, it is possible that promise is gone."

In a report released in July 2023, “The True Impact of Interchange Regulation: How Government Price Controls Increase Consumer Costs and Reduce Security,” Grossman wrote that studies show 79% of consumers choose credit cards as a payment option because of their data security.

Grossman said that, under the legislation, credit card authorizations would be allowed to flow across many “pipes” which would eliminate much of the “fraud fighting value that Visa and MasterCard have implemented.”

The bill would not require new networks to provide fraud detection, Grossman explained.

“It is expected these new networks would rather just route data, not ensure the authorization is legitimate. It is a fraudster’s dream come true!” he said.

Laverty said the DCUC concurs with Grossman's findings.

"In part with privacy concerns, under the Debit Networks Rules and industry PCI compliance, the credit/debit card front of card brands, retailers, processors, and networks are not permitted to have access to, or retain, consumer-level data such as names, addresses, account numbers attached to the card," Laverty said. "Only limited information is contained on the track of the card, or the chip, or in the online message."

"This is why DCUC found it equally alarming to see study proposals on 'credit and debit card user fees imposed on veterans and caregivers at commissary stores and MWR facilities.'" she said. "Plus, the federal government, not consumers themselves, pays these fees and should continue to do so in recognition of these heroes."

"The studies proposed within the CCCA or CCCA-like legislation would also need proper banking committee oversight if they seek to invade the privacy of veteran consumers," said Laverty. 

S. 1838 is currently pending in the U.S. Senate Committee on Banking, Housing, and Urban Affairs.