Hello, and welcome to the Votes and Verdicts podcast, hosted by the litigation and policy team at Bloomberg Intelligence. We are the investment research platform at Bloomberg LP. This podcast series examines the intersection of business policy and law. I'm Nathan Dean, an analysts with Bloomberg Intelligence covering financials policy.
And my name is Elliot Stein, and I'm an analyst with Bloomberg Intelligence covering financials litigation.
So today's episode of Votes and Verdicts will focus on one issue that may have heard of if you've flown through the airport lately, or you had your favorite YouTube v Locker or Instagram influencer opine on it. We're talking about the Credit Card Competition Act, co sponsored by Senator
Dick Durbin of Illinois. Elliott Stein and I had a chance to speak with the Senator about the bill, why it was needed, and his response to the criticism that the credit card reward programs would disappear if the bill were to become law. Before we do that, Elliot and I would like to just take a few minutes to talk about the bill and where the history of it is.
Yeah, So, Nathan, why don't you know before we get into Senator Durbin's Q and a portion of this, why don't you tell us you know where we are with the bill, what the history is, and what the current status is.
Yeah.
So this is called the Credit Card Competition Act and was sponsored, are introduced by Senator Durbin on June seventh, twenty twenty three, and is co sponsored by Republican Senator Roger Marshall of Kansas. So this is a bipartisan bill
and it has four co sponsors, two Democrats and two Republicans. Now, this bill would require the largest credit card issuing financial institutions, So essentially, those banks that have one hundred billion in asset up to or we require them to enable at least two credit card networks to be used on their credit cards instead of just one. So, for example, right now, eighty percent or eighty percent plus of the market is
dominated by Visa and MasterCards. This bill would require a bank to offer their merchant a network of Visa plus something else or MasterCard plus something else. That something else could be discover it could be American Express, but under the bill language, it cannot be just both Visa and MasterCard.
And I know there's a lot of incentives associated with this bill, how exactly would those work?
So, according to the bill summary and the bill text, bank networks would have to have the incentive, or would bank networks would have the incentive to hold down merchant fees in order to incentivive merchants to choose routing transactions over network instead of other ones. The idea here is more competition equals lower fees, equals lower fees than for
the consumer. This is very similar to what Senator Durbin did back in twenty ten and twenty eleven with the Durban Amendment on the Debit card interchange fee Proposal and provision and regulation that he sponsored them.
And what about rewards programs? I know there's been concern about those. Do you think there's any risk to them?
Yeah, So this is where you know, this issue has become more topical. So what I just said before that is from the bill summary in the bill text that the idea here is that more competition equals lower fees for the merchant and then lower fees for the consumer. And the banks and the airline industries have countered back and said that's just not going to be the case. You know, as you will hear from Senator Durbin a
little bit later in terms of his response. But these credit card programs, airlines, YouTube blockers, bloggers, even the points guy have countered that if this bill were to become law, reward programs with credit cards could be at risk. And you'll see again, you'll hear Senator Durbin's response to that
point shortly. But we're talking about a bill that has pitted the retailers and the consumer advocates versus banks and airlines, and that it's just something you've rarely ever see in Washington.
Yeah, that's quite the battle royale. All right, So this bill becomes law, what happens next?
So if this bill were to come law, the next step would be for the Federal Reserve to issue a proposal implement the regulation. This is how it works in Washington. So Congress passes the law, they say, here's what the law is at the one hundred thousand foot level. Then the Federal Reserve has to go forward and figure out, okay, how does the law work at the five foot level. So the legislation will say the Federal Reserve must issue
a rule within a certain amount of time. But from the fedce perspective, it could take a year, if not longer. For example, when the Dot Frank Act passed the provision known as the Durban Amendment, they did this on July twenty first, twenty ten, which required the Fed to limit fees for charge to retailers for debit card processing. The Federal Reserve didn't issue its final regulation until June twenty ninth,
twenty eleven, and that was extremely fast. In fact, the Federal Reserve is currently going through a proposal to change that Urban Amendment provision from twenty eleven, and they're probably going to take it just about a year or under a year to do that. So if this bill were to come into law, and let's say if it happens either this year or next year, you're probably looking twelve to eighteen months for the regulation to come out and
then subsequently compliance period after that. So this was a little bit about the bill and a little bit more about the understanding. So without any further delay, let's get into the discussion that Ellie and I had with Senator derban.
So.
Our guest today is Senator Dick Durban of Illinois, who I as a native of Chicago and have followed ever since he took his seat in the Senate over the victory over Al Salve in nineteen ninety six. You know, Senator durban is also chairman of the Senate Judiciary Committee and also serves as the Democratic Whip. Senator Durbin, thank you very much for agreeing to talk to us today and welcome to the votes.
In Verdiccks podcast with you great. Thank you.
So, while we would love to talk about a number of issues with you, there's one that is near and dear to our hearts, and that is the Credit Card Competition Act, which you've worked on with Senator Roger Marshall and a number of other co sponsors in the Senate. To listeners that are not aware of, the short summary states is that the Credit Card Competition Act would enhance credit card competition and choice in order to reduce successive
credit card fees. It would require the largest credit card issuing financial institutions in the country, those with assets over one hundred billion, to enable at least two to credit card networks to be used on their credit cards instead of just one, and at least one of those networks must be network other than Visa or the MasterCard.
Do all believe.
So to start off with Senator Derbin, why does America need this bill?
Competition? We believe in the free market system, and we believe competition is a key element. Unfortunately, you'll find retailers all across the United States who are stuck with a swipe fee or interchange fee. They give nothing to say about take it or leave it. If you want to use Visa and MasterCard, you have to pay the fee. So we want to have some competition for that business. Let's have at least one other network for retailers to choose from.
So, Senator, you know, one of the ideas, of course, is that more competition will bring about lower fees and that those savings will then be passed on to the consumer from the retailers.
You know.
I guess one question is, how do you ensure that retailers do indeed as those savings on to consumers, you know? And I asked that because the banking industry, of course, has contested and said that retailers would likely you know, pocket most of those savings for themselves to their own benefit, you know, So why is the banking industry wrong about that? And then along similar lines, I guess the banking industry has also argued that the law would essentially weaken cybersecurity
protections and potentially reduce access to credit as well. What do you say about those criticisms as well.
I've been through this before with debit cards more than ten years ago. There's a long litany of horror stories that the banks and credit card companies want us tell us, and frankly, they aren't backed up. In fact, here's the bottom line. Most retailers are in a low percentage recovery situation. They're in competition. They've got to be able to compete in the market. If they have a benefit to one of the biggest charges that they face as retailers, I
believe the consumers are going to benefit from it. There have been some analyses of what happened in the debit card market as a result of the first round of the Turbine Amendment, and there's been clear evidence that the consumer was a winner.
You know.
So we've seen criticism not only from the banks, but also from the airlines. You know, if anybody's flown through LaGuardia or Reagan or O'Hare, you know they've probably seen the advertisements that we should be in opposition to this bill. In fact, I've seen YouTube travel bloggers tell me that on the Instagram circuit that I should be in opposition to this bill, all under the idea that if this bill goes forward, reward programs with credit cards or the
credit card programs are going to disappear. Is that a valid concern? Do you think that would happen?
No, it absolutely is not. Let's consider two interesting things. The first is that most people would be surprised to know that at least two of the major airlines have more profit coming off of their branded credit cards, and they do off of aviation operations. It turns out their
banks primarily with airplanes. And if you're a passenger, I just went through this earlier this week, you sit down, you buckle up, they give you the key safety instructions, and then they start peddling their credit cards on the airplanes. The poor flight attendants who had better things to do. We're working up and down the aisle with brochures trying to get people to sign up for their credit cards.
Why because for United and American, for example, they make more money off their credit cards than they do off of flying airplanes. And that's a surprise to most. The second thing is in Europe, where these interchange fees and swipe fees have been closely regulated and are much lower than the United States, they still offer the same frequent flyer plans and the same reward programs. So I think this is a phony issue.
Yeah, you know, we saw Senator Marshall try to insert this bill into the FA talking about airlines into the FA Reauthorization Bill, and we're recording this on May fifteen, so this was earlier in the month.
Will you and.
Senator Marshall try again this year to pass the bill, either as a standalone package or as potentially trying to attach it to say the Farm bill or a funding bill or anything like that, or is it going to have to wait until after the November election.
Well, you know most of your listeners will as well. I'm a Democrat from Illinois, Roger Marshall up or Republican from Kansas. But he is my partner in this effort, and he is very aggressive on it, and he is looking for the first opportunity to bring in to the floor, and I want to help him do it. This FAA
bill had a deadline on it. We didn't want to jeopardize airlines safety in any way, and they reached the department, we couldn't push it any further, but we're looking for any and all opportunities to bring us to the floor.
Do you plan to just a quick fall up on that? Do you plan to have any additional hearings if that's feasible on the bill? I know that in the past you've tried to under the Senate Judiciary to bring in the airline CEOs. Is that something news You're gonna try again.
We continue to try to bring them in. Some are cooperative, some or not. We'd like to bring them all in and let them tell their side of the story and ask a few questions.
All right, Senator, that's it for the substance of questions. Now we move on to the fun grab bag question, which we ask of all guests, including senators. If you were stranded on a desert island, what are three pieces of music that you would want to take with you? And it could be an album or a song, you know, it's up to you.
Well, that's a hard question for me because I like a lot of different music, but I would say the top ones if I'm just stranded with three Graceland by Paul Simon, the best of James Taylor, and Collected Symphonies of great Beethoven.
That's an excellent choice.
Yeah, good combination. That was really interesting what the Senator said about his musical choices. I was particularly struck that he chose Paul Simon because coincidentally, Paul Simon, not the musician Paul Simon, but the former Senator Paul Simon is who Senator Durbin replaced in the United States Senate Paul Simon, as Nathan you know, as a native of Illinois, was a senator from Illinois. So I thought that was interesting.
We should have asked the Senator why why he chose, you know, Paul Simon, and he said, Paul Simon's Graceland, which his great album.
Yeah.
And you know, as like you mentioned, I grew for the listeners. I grew up in Illinois, and so I really wanted to help get his help in sponsoring legislation requiring Portillo's or Buena Beef to require an Italian beef shop to be set up in the District of Columbia because if you ever go to Chicago, highly recommend the Italian beef sandwich. So much better than Philly cheese steaks. I'll say that to the day I die. But again, you know, didn't have the chance to do that, So maybe on the next time.
Yeah, we'll have to have him back and pick a span some more about Paul Simon the Senator and Paul Simon musician, and I guess your culinary choices as well. All right, so let's get back to financials content, Nathan, what's going on with the House Financial Services Committee?
Yeah, so we're recording this on May fifteenth, and as we record this right now, the House Financial Services Committee and the Senate Banking Unity tomorrow and May sixteenth are having a hearing from the Federal Regulators.
This is the Banking Prededitial Regulators.
This is Michael Barr, the FED Vice Chairman from the Federal Reserve, the acting contour over the Currency Michael Sue and the FDIC Chairman, Martin Grueberg. So there's really three
things that are happening in these hearings now. The first one is we'll FDIC Chairman Martin Grumberg keep his job because in the news recently, there has been a report that has come out about highlighting the toxes of culture over at the FDIC, and Martin Gruenberg essentially is going through the ringer right now as we speak, talking about how all these changes are going to come about over at the FDIC in response to that report. This is
a very difficult time for him. He's not getting a ton of support from the Democrats as I've been following the hearing, but you're also not seeing a ton of Democrats pushing.
For his resignation either.
There is someone in a challenge at the moment, because if the FDIC chairman were to step down, the FDIC then becomes a locked entity of being two and two, and the Republican Vice Chairman would be put in place and in charge until the Senate were to be able to confirm a new FDIC chairman, which probably wouldn't be able to happen this year anyway. So if Chairman Greenberg steps down, things like the Boso three endgame are going
to be at risk. But as of right now, it looks like he's still able to keep his job.
Now.
The Bosle three end game is getting a lot of intention here in the Hearings twelve as well. So Bloomberg News put out an article just last week saying that the Bozo three endgame. The regulators are aiming to finalize this by August. That is an out of consensus view. I don't think anybody in Wall Street thinks that that can happen. But right now the regulators are still proceeding.
Is if that's the case. My view on it is is that until I hear from the regulators otherwise, we have to presume that the regulators do think that they can get this done by August. But the challenge here is is something called the Administrative Procedures Act, and right now the Bozo three or the FED. I'm going to use the FED because they're taking the lead on this. The FED is saying, okay, we are going to make
broad immateial changes. That's their words, broad and material changes to the Federal Reserve or to the Boso three endgame. The question is, can you make broad and material changes that A they can get the rule out by August and B they can get the rule in order to pass the court so that Elliott's not writing on this a year or two from now.
That's a tall challenge.
And for what it's worth, the August deadline is really coming about because the Congressional Review Act, which would allow a Republican House Senate and President Trump, if he were to win in November, would allow them to overturn it if it comes out after August ninth. So the FED has a huge challenge. I don't envy their summer plans because they're going to be working late nights in order to get this out. But as of right now, I'm still presuming that the FED is going to try and
get it done by August. But don't be surprised if in the next month or so they're going to say we have to actually propose this again or we're going to push it off the next year. FED Vice Chairman Michael Barr wouldn't commit to any of this in the hearing. He's saying flat out, we're still working through the process and we haven't made a decision, but we have committed to making broad material changes.
So you know, we'll see.
But something equally important is what's going on with the courts at the moment and the CFPB. So, Elliott, I've just been reading a lot of headlines on the CFPB. What's going on there? Something with credit card late fees, and then there was something else with the Supreme Court, and the CFPB funding. And folks, look, I know what I'm asking. This is just a loaded question for Elliott. But you know, Elliott, if you could tell us what's going on in the CPB.
Yeah, well, I would never venture to say that this stuff is more important than what you're covering. They're equally important, no doubt. So yeah, So I'll start with the Supreme Court. We're waiting for ruling on the constitutionality of the CFPB's funding. If you recall, the Fifth Circuit in New Orleans a couple of years ago held that the CFPB's funding was unconstitutional because it's not part of the congressional appropriations process.
The case was argued in the Supreme Court back in October. I would say the consensus view is that the CFPB did a lot better than people expected, and I think a lot of people expect the CFPB to win in the Supreme Court. I might still be one of the outlier views on that because I still think the Supreme Court is going to hold that the CFPB's funding is unconstitutional. We're waiting the decision. It could come as soon as you know, Thursday morning, May sixteenth. Again, we're recording this
on May fifteenth. So if the decision comes out, it comes out, and you know, you can say we said it here that it might come out then, but it could come out also later, you know, later in May or in June, even But that case is important has ramifications for a lot of what the CFPB does, including rules that it has proposed and enforcement actions as well.
Just last week, actually on May tenth, the CFPB's credit card late fee rule was put on hold by a federal judge in Texas on the grounds that the CFPB's funding was held on constitutional by the Fifth Circuit and as a result, the rule was promulgated by an unconstitutional agency and therefore, you know, the the judge said that the challengers to the CFPB credit card late few rule were likely to win their case, and so he put the rule on hold while they continued the litigation on
the merits that case. By the way, the CFPB credit card late fee rule has been one of the quirkiest procedural cases that I've ever seen. I think, you know, when the challengers brought the lawsuit in Texas, in federal court in Texas, which is in the Fifth Circuit, they anticipated that you know, they'd get a swift victory, to get the rule put on hold, you know, almost immediately, and then win on the merrits down the road. That's
really not what happened. And you had a judge down there, Judge Pittman, who he's a trumpetpointee, so everyone sort of thought it'd be easy sailing for the challengers, but instead he questioned whether his court was the proper venue for the litigation, and he actually sent the case to Federal Court in Washington, d C. But it only stayed there briefly because the challengers then went to the Fifth Circuit and asked for that transfer to be va, which the
Fifth Circuit did, and the case then went back to Texas before Judge Pittman, and then he granted the preliminary injunction. So the rules on hold, Nathan, is the short, short answer to the short answer to my longer answer, and we'll see where it goes from here. They still have to you know, the CFPB says that the venue still has to be decided actually, so it's possible the case moves yet again, but then it also has to be decided on the merits. But at the end of the day,
I think the challengers will win. I don't think this rule is going to be revived, you know, even if it goes to a more CF three friendly lower court, you have the challengers have the Supreme Court as as a backstop, and I think they'd be skeptical of the CFPB's rule here. So that's where we are with CFPB stuff.
And with that, I think we're going to wrap up this episode of Votes and Verdict. We're extremely grateful Senator Durbin for appearing on this episode. This was very informative about a very important piece of legislation that's making weights to Congress. As a reminder, you can read all of our Bloomberg intelligence research on the Bloomberg terminal at big and this podcast can be found at Apple, Spotify, and all various social media platforms. Thank you again and have a great day.