While banks trash card restrictions, merchant lobbyists are cheering

• Key insight: Merchant groups have praised Trump's support for the Credit Card Competition Act. 
• What's at stake: Card issuers face pressure to lower rates and fees. 
• Forward look: Consumers who get shut out of credit cards may look for new and potentially risky sources of credit. 

Banks are sounding the alarm about President Donald Trump's call for a 10% cap on credit card rates, though merchant groups are applauding another move from the President that could tighten card regulations.

Trump has endorsed the Credit Card Competition Act, a bipartisan bill sponsored by Sens. Dick Durbin, D-Ill., and Roger Marshall, R-Kansas. The CCCA would require bank-issued credit cards to offer merchants at least two credit card network options, at least one of which cannot be Visa or Mastercard. In the wake of Trump's support for the CCCA, which Republicans have traditionally opposed, the senators reintroduced the act this week.

"Giant credit card companies and Wall Street banks have gotten away with price-fixing credit card swipe fees and sticking everyday Americans with the bill for years," Merchant Payments Coalition executive committee member and National Association of Convenience Stores General Counsel Doug Kantor said in a release. "Enough is enough, and the President deserves enormous credit for taking on this issue that secretly eats away at every family's budget."

Lobbyists warm up

Merchant groups, which have sparred with the credit card industry in court for decades over interchange fees and other charges, are applauding the new attention for the CCCA. At the same time, they're hoping to sidestep Trump's threat to issue an executive order capping rates at 10%, which the President says could come on January 20. The President does not have the authority to unilaterally set interest rates, which would require an act of Congress. 

 "This legislation [CCCA] is urgently needed to fix a credit card marketplace that is fundamentally broken and stacked against small businesses—especially independent community grocers," said Christopher Jones, National Grocers Association Chief government relations officer, in a release. "The Credit Card Competition Act would provide much-needed relief to independent grocers and their customers, who benefit the most from competition in the marketplace."

Another trade organization, The National Association of College Stores, also lauded Trump for his endorsement of the CCCA. 

"It recognizes the need for greater transparency and competition in the payments system," said Richard Hershman, vice president of government relations at the college stores group, in a release. "This legislation represents an important step toward lowering transaction costs for merchants of all sizes and helping ensure that students are not paying more than necessary for essential educational materials."

The NMC and NACS said they were not taking a position on Trump's potential executive order. The NGA did not provide American Banker with a comment.

Another trade group, the National Taxpayers Union, came out against both the 10% interest rate cap and Trump's support for the CCCA. 

"Implementing price controls and constricting free competition of credit card processors would be incredibly damaging to taxpayers," Tommy Aiello, senior director of government affairs for the NTU, said in a release. "This would not reduce inflationary pressure on taxpayers but instead will harm taxpayers' access to critical credit card benefits and programs that many rely on, especially in times of need." 

Risk for consumers

The mandates in the CCCA additionally would encourage merchants to divest from advanced payments networks in favor of cheaper, less secure, and less reliable alternatives, NTU said. 

"It is often said that consumer spending is the backbone of the economy. It's clear that reducing available credit would drive down consumer spending power and create significant challenges for the economy as a whole," Aaron Press, research director at IDC, told American Banker. 

Another payment expert suggested the administration's moves are based on politics ahead of the upcoming midterm elections, with tangible regulatory change unlikely. 

Trump's "sudden discovery" of an affordability crisis is "transparently opportunistic," Robert Hockett, a law professor at Cornell University, told American Banker, adding Democrats have pushed an affordability message. "On the other hand, the old saw that any caps at all will lessen credit availability is as tired an old cliche as there is in this space, a zombie complaint that evades the question of whether any financially distressed person ever actually benefits from ruinous exploitative usury."

And a financial consultant noted concerns that a steep and sudden cut in credit card interest rates could have unintended consequences. While merchants may welcome downward pressure on credit card rates and fees, broader economic stress could wind out hurting merchants, according to Marc Butler, a financial advisor and co-author of Master Your Money, Secure Your Future.

"A year is a long time, and this cap is not a permanent fix," Butler told American Banker. "Everyone would agree that credit card rates are high. But do these rate caps help consumers and their access to credit? There could be unintended consequences here."