Credit unions have been a lifeline for many Hawaii residents, especially through the recent pandemic. By providing access to savings accounts, checking accounts, loans and access to credit cards, many of our local credit unions have helped, and continue to help, our local families navigate their financial affairs. We have to protect our credit unions and local banks, which is why Congress must reject the Credit Card Competition Act of 2022.

The Credit Card Competition Act is being pushed by big retailers like Amazon and Walmart at the expense of ordinary consumers and small, local financial institutions. It would add a regulation to our credit card market, known as a routing mandate, that will dramatically impact our electronic payment system.

The mandate would force financial institutions offering credit cards to add an unaffiliated payment network to their cards so that these big retailers can pick and choose which payment network to use.

This is great for big-box stores, who will inevitably choose cheaper, often less secure, networks on which to process credit card payments. In response, payment networks will lower their interchange rates for merchants, the fees that merchants pay to process transactions electronically, so they can stay competitive with the cheaper networks. This will create a “race to the bottom” where interchange fee rates for merchants drop, and interchange fee revenue for financial institutions of all sizes, including credit unions, will plummet.

This has already happened before with debit cards 12 years ago. Congress passed a similar amendment called “the Durbin Amendment” that added routing mandates to debit cards, which allowed giant retailers like Walmart and Amazon to rake in an extra $90 billion in revenue. They were supposed to pass these savings on to consumers, but according to the Federal Reserve Bank of Richmond, 99% of retailers kept prices the same or raised them after the amendment passed.

That $90 billion came directly out of the pockets of local financial institutions and everyday Americans. A Credit Union National Association report found that the regulations cost credit unions $1.1 billion in 2016 alone. A 2014 study conducted by the Mercatus Center found that the regulations had reduced earnings at nearly 75% of local financial institutions. In response to these billion-dollar losses, small banks and credit unions cut back on services that many everyday people rely on, like free checking accounts and accounts with low minimum balance requirements. Big banks also dramatically cut back on free checking and raised their fees.

Now the same big corporations are trying to push through the Credit Card Competition Act of 2022 and extend these routing mandates to the credit market. A 2017 Federal Reserve study found that the negative consequences of routing mandates are felt by both regulated and exempt financial institutions.

Since the credit market is larger than the debit market, economists in 2021 reported that extending these regulations to credit cards could cause annual revenue losses of $5 billion to $10 billion for community banks and local credit unions. That means banks and credit unions of all sizes will have to make cutbacks to their credit costs, resulting in less valuable rewards programs, higher interest rates, and tighter credit restrictions, making it even more difficult to access for folks who are struggling.

The loss of reward programs will have a particular impact in Hawaii, as we have so many visitors who save up their reward points to come to the islands, and also local residents who redeem points to visit family and friends on the mainland or for a staycation.

Our local banks and credit unions cannot afford another hit, especially in this time of economic uncertainty. Congress needs to reject the Credit Card Competition Act of 2022.

Carol Marx is president of the Hawaii Credit Union League; Steve Goo is former president/CEO of Hawaii FCU; Scott Kaulukukui is president/CEO of Hickam FCU.