Credit Routing Requirements Won’t Help Small Businesses Recover

By at 31 August, 2021, 3:28 pm

By Karen Kerrigan –

Over the past 18 months, small businesses have been ravaged by COVID-19 and the subsequent restrictions that forced millions of storefronts to shutter their doors. As a result of restrictive shutdowns and rules, one estimate finds that more than 285,000 small businesses have closed down across the United States. We believe this is a very conservative number, and the tally will reach far and beyond this amount once all data is fully collected. Meanwhile, big-box retail giants have flourished and have generated record profits. Some are calling this a $250 billion wealth transfer, meaning big-box retailers have flourished at the expense of small businesses. And now, these larger retailers are looking to push their competitive advantage further by pushing lawmakers to implement credit routing requirements on credit cards, which would have an adverse impact on consumers and small businesses.

Routing requirements initially made their debut in 2010 as part of the sweeping Dodd-Frank legislation in which lawmakers, led by Senator Dick Durbin (D-IL), implemented price controls and routing regulations on debit cards. Now, more than a decade later, large retailers are lobbying lawmakers in their attempt to expand these same requirements and restrictions to credit cards, which would harm competition and hurt small businesses.

Following the passage of Dodd-Frank, lawmakers who advocated for routing requirements promised increased savings for consumers. Instead, big retailers received a revenue windfall while consumers saw their debit card benefits disappear. For instance, rewards programs and perks like zero-liability protection, free checking accounts, and text message alerts were no longer economically feasible for community financial institutions and were therefore eliminated, leaving consumers exposed to a greater risk of fraud.

Now, under this similar proposal, the government would mandate that more than one payment network be required for each credit card transaction. This would effectively allow retailers to determine the payment networks through which consumers’ credit transactions are routed. Merchants would, of course, choose the networks that best suit their interests— which could be cheaper — but perhaps without the adequate security technologies that other routing networks have invested in. This change leaves consumers vulnerable to inefficient, unsecured payments systems and fraud.

The reality is that cardholders have grown to expect certain benefits, namely security protections and rewards. But those very perks depend upon technological investment and the free competition among network providers — the same market aspects that credit routing requirements would eliminate. Without the same benefits and protections previously offered, cardholders will have less incentive to shop with their cards as rewards programs and fraud protections disappear. Costs could also creep higher at check-out, which would be a painful outcome for both consumers and small businesses and they work to dig out from the economic losses generated by the pandemic.

Karen Kerrigan is president and CEO of the Small Business & Entrepreneurship Council.


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