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A recent op-ed raised concerns about the Credit Card Competition Act, but the truth is this bill will have a positive impact on small businesses and provide an economic boost for underserved communities by lowering the costs of goods and services.
The main goal of the Credit Card Competition Act is to help reduce the swipe fees that businesses pay on every credit card transaction by injecting competition in the payments marketplace. This would also benefit consumers who are paying over $1,000 more on higher priced goods as a result of these fees. This bill would ensure businesses have at least two payment networks they can choose from when processing payments. When businesses are presented with more options, it creates a competitive market where credit card companies and banks have to provide a better service, usually at a lower cost, otherwise businesses will choose a different network on which to process transactions.
The lack of competition in the current marketplace is what has led swipe fees to increase rapidly, more than doubling over the past decade despite the cost to financial institutions to process transactions decreasing over that same time period. These increased fees make it harder to start and run a business, and they increase the costs of everything from groceries to gas. For those who are already struggling with record-high inflation, these ever-rising fees are making it harder for families to make their budget stretch.
Last year, the Hispanic Leadership Fund (HLF) released a report that shed light on the overwhelming burden of these hidden swipe fees. These fees have a profound negative impact on underserved communities, with our report revealing that “Households with an annual income below $75,000 collectively channel over $3.5 billion towards those earning more than $75,000 per year” through the credit card system. This is because businesses are often forced to raise prices to cover swipe fees, regardless of the payment method customers use. So those who pay with cash, which are predominantly lower-income families, subsidize those who are paying with credit cards with varying rewards programs, effectively causing working-class customers to subsidize the consumption of higher-income individuals.
But the impact goes even further. These fees severely impact small businesses, especially those owned by minorities. Think about the small shops and stores in our neighborhoods – they’re hit hard by these fees, which often amount to their second highest overhead cost, even bigger than the rent they pay for their stores in many cases.
Our report detailed a startling truth: credit card swipe fees strip between 17% and 19% of the annual profits from many Main Street businesses. Given that these businesses typically operate on razor-thin profit margins of approximately 2.5%, this financial strain is unsustainable. It’s crucial to remember that harming small businesses translates to stifling job creation, an aspect vital to sustaining the United States’ economic engine.
By enhancing competition and reducing payment processing costs, the Credit Card Competition Act can be especially advantageous for small businesses, including those in the Latino community. Among small business owners, Latinos are the fastest growing demographic, contributing $500 billion to the economy in annual sales. Passing legislation to drive down excessive credit card swipe fees will keep these investments in our local communities.
The CCCA would infuse the credit processing market with healthy competition, thereby reducing swipe fees. Just by expanding the network options available to merchants during transaction processing, this legislation has the power to make a tangible difference for small businesses and their customers. I hope U.S. Sens. Kyrsten Sinema and Mark Kelly can see through some of the misleading claims and make passing the Credit Card Competition Act a priority this year.
Mario H. Lopez is president of the Hispanic Leadership Fund, a public policy advocacy organization that promotes liberty, opportunity and prosperity for all.
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