By Patti Murphy
Junk fee reduction, debit cap haircut, reigning in big tech payments initiatives: these are just a few of the items on the agendas of policymakers in Washington this year. However, major legislation affecting financial institutions and card services isn't expected to pass.
The Credit Card Competition Act, for example, is unlikely to see action in what remains of the 118th Congress, which runs through the end of 2024. That's the legislation drafted by Senator Richard Durbin, D-Ill., intended to provide merchant choice over which networks card payments are processed.
"The bill still faces significant congressional headwinds," said Scott Talbott, executive vice president at the Electronic Transactions Association. On the other hand, there's plenty of "regulatory overhang" especially related to payments, Talbott added.
Following is a rundown of key initiatives.
The Federal Reserve, which was put in charge of capping debit card interchange by the Durbin Amendment to the Dodd-Frank Act, is planning to cut the permissible interchange on debit card payments by nearly a third, beginning later this year.
Since 2011, debit interchange has been capped at 21 cents and 0.05 percent of the transaction, plus a penny to cover fraud prevention and detection costs. That works out to about 24.5 cents on a $50 transaction. Now the Fed wants to lower that to 14.4 cents plus 0.04 percent and 1.3 cents to cover fraud prevention and detection. That works out to 17.7 cents interchange on a $50 debit card payment.
The cap applies to any financial institution with $10 billion, or more, in assets, which includes only the very largest FIs.
A recent white paper, distributed by the Consumer Bankers Association, claims consumers will be hardest hit if the proposal goes through. Similar to what happened after the original regulations took effect in 2011, FIs will be forced to recoup lost income through higher account fees, the elimination of free accounts, higher minimum balances and reduced card rewards.
"If the current proposal to reduce the debit interchange fee cap is finalized, the research suggests that consumers will pay an extra $1.3 billion to $2 billion annually in higher bank account fees," the white paper stated. It was written by Nick Bourke, former director of consumer finance at The Pew Charitable Trusts.
Bourke estimated that interchange revenues at card-issuing banks would fall by $3 billion annually. That would be offset, in part, by $1.3 billion in higher monthly account maintenance fees, while other consumer account fees would increase by between $250 million and $700 million, Bourke predicted. Any consumer pass-through savings would be so negligible that they couldn't be estimated, he added.
The Consumer Financial Protection Bureau is contemplating a regulatory regime for big tech companies that provide person-to-person payment services. Its stated intention is to have regs in final form this year.
The bureau wants to regulate big tech companies that offer digital wallets and other payment applications; its aim is to ensure that those companies play by the same consumer protection rules that banks and credit unions must. The move is directed solely at the biggest of big tech—companies handling more than 5 million consumer digital payments yearly. That includes Amazon, Apple, Google, Meta, PayPal and Block, the CFPB said.
In a recent blog post, the law firm Greenberg Traurig stated it expects that if the rule is adopted as proposed, it will "directly impact about 17 companies that together facilitate approximately 88 percent of transactions in the payments space.".
The CFPB stated in a press release that big tech firms often blur the traditional lines between banking and commerce. The proposed new rule would allow the bureau to supervise these companies for compliance with applicable consumer financial protection laws, such as protections against unfair and deceptive acts and practices, as well as privacy rights.
"The CFPB's focus on increasing competition by breaking up Big Tech's seeming competitive advantages could result in significant new compliance risks to covered businesses, such as operational disruptions during examinations and financial penalties in the event of non-compliance," Greenberg Traurig wrote.
Dual pricing arrangements that help defray merchant costs by shifting some or all processing fees to purchasers, could get caught up in the Biden Administration's campaign against junk fees.
In October 2023, the Federal Trade Commission proposed a new "rule on unfair or deceptive fees," for the non-bank financial services providers it oversees. The commission said it was specifically interested in add-on fees that inflate the total cost of goods and services.
While credit card surcharges were not mentioned in the original proposal, the FTC said the issue was raised in several comment letters, so it was added to the list. One letter, referring to restaurant fees, quipped, "It's difficult to un-eat a meal if you disagree with these fees."
The FTC said the rule will give it more authority to go after companies that unfairly hike prices at the register. Of particular concern is what the FTC defines as an "ancillary good or service." For example, it said, "If a business includes a fee the consumer cannot reasonably avoid to process the payment for any good or service, such payment processing would be a mandatory ancillary service."
Jonathan Razi, an attorney and expert on credit card surcharging, expects "a lot of push back" if the FTC moves forward with the proposal.
It was revealed last year that the Department of Justice has an ongoing investigation of Visa. At issue is Visa's practice of charging higher fees to merchants that choose not to use the network's exclusive tokenization technology, according to published reports. Mastercard previously settled a similar case with the DOJ, which sees the practice as a violation of federal antitrust law.
Tokenization was introduced nearly a decade ago. The technology replaces a credit/debit card's 15-digit account number with a unique token accessible only by the card brand. Bloomberg reported that over 4 billion tokens have been used by Visa with more than 13,000 merchants.
While the paralysis that has been gripping Congress has stymied consideration of major legislation, congressional committees continue to monitor developments in consumer payments.
Senator Sherrod Brown, chair of the Senate Banking Committee, has been vocal about the prevalence of scammers on P2P payment networks, arguing that network operators and FIs aren't doing enough to protect consumers.
"Scammers and fraudsters have ramped up their efforts to take people's money. Banks and payment apps have stood on the sidelines while the problem has only gotten worse," he said at the start of a Feb. 1, 2024, hearing on the matter. "And now we're faced with the possibility that artificial intelligence will make these problems worse." Banks and payments companies "are not doing nearly enough to prepare for the threat AI poses in increasing the scale and impact of scams," he added.
He gave a nod to the CFPB for its proposal to bring big tech payments activities under its regulatory regime. "These companies need to step up, and they apparently need rules to make them do it," Sen. Brown said.
Brown and others on the banking panel also want the CFPB to take action to oversee the burgeoning buy now pay later (BNPL) market.
According to Adobe Analytics, during the 2023 year-end holiday shopping season, (Nov. 1 through Dec. 31) BNPL usage for online purchases hit an all-time high of $16.6 billion—14 percent or about $2.1 billion more in BNPL purchases than during the 2022 holiday season.
In a letter to CFPB Director Rohit Chopra, Sens. Brown and John Fetterman, D-Pa., urged the bureau to implement new protections around BNPL. The two senators urged the CFPB to use the "full range of your authority" to protect consumers from the potential perils of BNPL.
"While BNPL might provide some consumers with helpful flexibility, it also presents new risks that the CFPB should continue to monitor and guard against, especially in light of the significant increase in the use of BNPL during the holiday season," the senators stated. "The CFPB must ensure that BNPL does not become a method to take advantage of struggling consumers."
The CFPB said its research suggests about one in 10 BNPL borrowers have paid late fees to BNPL lenders.
In December 2023, the Office of the Comptroller of the Currency, which regulates many of the nation's largest banks, put those banks on notice that it, too, was concerned about the proliferation of BNPL loans and the implications for consumer debt.
The OCC sent bankers "guidance" in the form of a bulletin detailing necessary steps for managing risks associated with BNPL products. The OCC said it was especially concerned about loans advertised as interest-free provided the amount is paid in full within four or fewer installments.
The agency said it was prompted to issue guidance after it saw what the CFPB is doing. (Both the OCC and CFPB are independent agencies within the U.S. Treasury Department.) "[T]he guidance confirms our expectation that OCC-supervised institutions offering these products do so in a responsible manner," the regulator stated. 
Patti Murphy, self-described payments maven of the fourth estate, is senior editor at the Green Sheet. She also co-hosts the Merchant Sales Podcast, and is president of ProScribes Ink, www.proscribes.net.
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