By Lamar Tidwell, Mayor, Ecorse Michigan
Over this past year, I’ve watched as inflation levels have steadily increased to record highs. This has made it ever more difficult for everyday goods to remain economically accessible for American consumers, especially for those within the African American community.
Now, Congress is looking to further stress consumers’ wallets by returning to a failed economic playbook with the introduction of the Credit Card Competition Act of 2022. Just over 10 years ago, Senator Dick Durbin of Illinois implemented a rule that restricted interchange fees (the fees merchants pay to use electronic payment networks) on debit card transactions and imposed a routing mandate on debit cards. This created a race to the bottom on interchange fee rates because it made banks add an extra unaffiliated payment network to their debit cards, so payment networks responded by lowering their rates to stay competitive, and both big and small banks lost billions in interchange fee revenue.
So why do we care that banks lost money? Because they passed those losses onto us. In order to recoup their own losses, banks made significant cuts and changes, such as reducing the number of free checking accounts, adding new fees, and raising the minimum balance for bank accounts. This particularly hurts small banks and credit unions that often serve marginalized communities where big banks are reluctant to invest. The National Black Chamber of Commerce even spoke out against the amendment after its passage, with their co-founder and president stating that the amendment “threatens the financial future of millions of up-and-coming consumers”.
These actions directly hurt the African American community by making banking more expensive and less accessible, even though we already have less access to financial services than other groups. Already, studies conducted by the Federal Reserve Board of Governors found that nearly one-third of African American consumers are underbanked. When looking at the impact of the Durbin Amendment, George Mason University found that the law increased the unbanked
population by nearly 1 million Americans, including a disproportionate number from minority and low-income communities.
Adding insult to injury, the legislation did not even give consumers the minor benefits it promised. As noted by the Congressional Black Caucus Institute, retailers did not pass any of their new savings on to consumers. Instead, research conducted by the Federal Reserve Bank of Richmond determined that 98.8 percent of retailers chose to raise prices or keep them the same following the implementation of the law.
Congress is now considering regulating credit cards in the same way through the Credit Card Competition Act. This bill will hurt consumers across the board but will have particularly harmful impacts on the African American community.
We have already seen the significant harm that this law has had on our debit market, so you can only imagine the damage this law would do to our credit market. Banks would lose billions of dollars every year, leading them to reduce rewards and jack up fees, just like they did in Australia when their Federal Reserve Bank implemented similar policies. Banks would also have to reduce their own liability by raising credit standards, making credit far less accessible to struggling borrowers. Moreover, by enacting the Credit Card Competition Act, consumers would essentially be gifting big box stores up to $50 billion annually.
We need to stand against the Credit Card Competition Act of 2022 to safeguard African American communities from further economic harm.
Lamar Tidwell is the Mayor of Ecorse, Michigan
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