Indraneel Chakraborty, a Professor of Finance at the Miami Herbert Business School, University of Miami, said that the Credit Card Competition Act would significantly impact small credit card issuers by reducing their already thin profit margins. This statement was made in a report.
"There is no surer way to disrupt the economics of small credit card issuers than to enact this legislation, which will wipe out already-thin margins of low-volume issuers (one percent return on assets, on average, according to the Federal Reserve), causing them to leave the credit card market and concede the product category to larger firms," said Chakraborty.
According to Congress.gov, the Credit Card Competition Act of 2023, introduced in the Senate as S.1838, aims to enhance competition in the credit card market by requiring larger financial institutions to offer at least two network options for transactions. The bill seeks to reduce merchant costs associated with credit card fees. Proponents argue that increased competition among networks could benefit consumers through lower prices.
The Electronic Payments Coalition reported that the Credit Card Competition Act of 2022 failed due to strong opposition from small financial institutions and credit unions. They argued it would reduce revenue used to fund fraud protection and consumer rewards. The coalition said that the legislation would have led to fewer choices and higher consumer costs and noted it would have disrupted the existing payment infrastructure.
According to the Federal Reserve’s Financial Stability Report, small credit card issuers typically operate with a one percent return on assets, significantly lower than larger institutions. The report notes that increased regulatory burdens or reduced fee structures could erode these margins, potentially pushing smaller issuers out of the market.
Chakraborty is a Professor of Finance at the Miami Herbert Business School, University of Miami. His research focuses on financial intermediation, banking, and the economic impact of financial regulations. He has authored numerous papers on the effects of policy changes on financial institutions.