Legislation makes credit cards less secure

We all rely on credit cards to help manage life’s expenses. That’s because credit cards provide more convenience, security, fraud protection and flexibility than cash, checks and most other forms of payment. But legislation recently introduced in both the U.S. House and Senate would fundamentally change how credit cards work. It would allow retailers to bypass secure payment networks and make credit card payments less secure.

Today, the bank or credit union who issues your credit card pays the growing expense of information security, fraud protection and any losses incurred from fraud. Since retailers (and their bottom lines) benefit from their customers’ convenient credit card usage, they pay a small interchange fee to the card issuer to help with the growing expense of keeping those payment networks secure for consumers.

The Credit Card Competition Act that’s currently being debated in both the U.S. House and Senate would give retailers more choices for which network they use to process their customer’s credit card transactions. Their options would include cheaper, less secure networks that would leave their customers at higher risk of fraud and leave their card issuer on the hook for the financial consequences of the retailer’s choice. Of course, retailers would have a financial incentive to choose the cheapest, less secure card-processing network while their customers and card issuers deal with the consequences long after the purchase is complete. If retailers are allowed to simply choose the cheaper networks that haven’t invested in the latest security technology, consumer payment data will be even more vulnerable to breaches and fraud.

This is especially poor timing for legislation that would weaken consumers’ security. Credit card fraud was already the largest type of identity theft in 2021, and fraud rates have doubled between 2011 and 2021. The combination of increased costs for fraud protection and decreased interchange fee contributions from retailers will cause banks and credit unions to reevaluate lending criteria, interest rates, rewards programs and more. Smaller credit card issuers will face being pushed out of the market, resulting in fewer options and less credit accessibility to consumers.

While the intention behind the Credit Card Competition Act is noble — to save consumers from the expense of interchange fees, we don’t have to speculate whether that will be the result. After similar legislation passed to limit interchange on debit transactions in 2010, a study by the Federal Reserve Bank of Richmond showed that less than 1 percent of retailers passed that savings on to their customers.

As a whole, the Credit Card Competition Act would reduce funding for fraud protection with little to no savings for consumers while making credit cards less secure and less accessible. Please reach out to your senators and representatives in Congress. Ask them to protect the security credit card purchases and the accessibility of consumer credit by opposing the Credit Card Competition Act.

Renee Christoffer is CEO of Veridian Credit Union.