Proposed credit card act would hurt small businesses
Last year, Condé Nast again named Santa Fe as one of the top two best small cities to visit in the United States, and I am proud of our city and the national and international visitors it attracts thanks to its growing community of artists, local culture and amazing architecture. So many of New Mexico’s small businesses, including the gallery I own, depend on our thriving tourism economy to succeed.
More than 85,000 tourists visited New Mexico in 2022 using points, miles and rewards, and brought an economic impact of nearly $115 million to the state, according to Airlines for America. The tourists using rewards points sustained nearly 1,200 jobs and supported our countless small businesses, local restaurants, and local artists and art galleries. This underscores how important tourism is for New Mexico not just to succeed, but to survive at all.
Unfortunately, the Credit Card Competition Act, which is being considered in the U.S. Senate, could put our bustling tourism industry at risk, hurting the countless businesses and employees that rely on it and impacting our state’s economy. The idea behind the bill is to allow merchants to choose cheaper networks when processing transactions, known as a “routing mandate,” theoretically letting them save money on interchange fees.
While this might sound like a harmless change to the payment system, it actually will have severe consequences on small businesses and tourism in New Mexico. In its attempt to allow merchants to choose payment networks, the act would make credit cards less safe and decimate perks like travel rewards programs, the ones tourists rely on to make travel more affordable. Putting these rewards programs at risk inevitably would hurt my small business in Santa Fe and small businesses all over New Mexico.
The loss of rewards programs is one of the most obvious issues with this bill. Consumers losing their rewards points will directly impact our tourism industry. A Javelin Strategy & Research report found that in 2022, card issuers spent an estimated $100 billion on cash-back benefits, including the travel miles tourists use to make their flights and hotels more affordable. But if banks and credit unions lose their interchange revenue, they will compensate for it by slashing cash-back programs, including travel rewards programs. As a result, flights and hotels will become more expensive to pay for and tourists will be less likely to visit our state.
This isn’t speculation. We can look to other countries to know exactly what will happen if this bill passes. When the Australian Reserve Bank imposed Durbin-style policies on their credit cards, Australian consumers lost access to no-fee credit cards, and the value of rewards points dropped by nearly 25%. That’s enough reason to believe the same will happen here if the act becomes law.
On top of costing consumers their rewards points, the Credit Card Competition Act will not save consumers any money. While large retailers will be able to use the routing mandates to their advantage to lower their interchange fees, they will not pass any of the savings on to consumers. This exact scenario played out in 2010 when Congress capped debit interchange fees: Almost all retailers either kept prices the same or raised them, according to a Federal Reserve Bank of Richmond study. There’s no reason to think there will be different outcomes this time around.
Finally, the current system is incredibly effective because card issuers invest billions in security features. In 2022 alone, the interchange system stopped more than $80 billion in fraud attempts, according to James Magazine. By imposing a routing mandate, the bill will open up credit cards to be processed on untested and likely unsafe payment networks. This could increase incidents of fraud, which would increase small businesses’ costs and put our customers’ financial information at risk of scams and data breaches. New Mexico consumers and small businesses should not have to deal with these consequences.
On behalf of New Mexico consumers, artists and small businesses, I urge New Mexico’s congressional delegation to oppose this dangerous bill and support proposals that protect our tourism industry and provide the payment security we need.