[Analysis] Wall Street Stokes Culture War to Fight Swipe Fee Reform

A bipartisan group of lawmakers is pushing for a piece of financial reform that would unshackle small businesses and consumers alike from the maw of Visa and Mastercard’s credit card duopoly. Wall Street, in response, is spending millions to thwart the bill’s recent advances by fueling a conservative culture war over gay pride demonstrations and Chinese influence.

In coordination with big banks, Visa and Mastercard extract billions of dollars each year in “swipe fees” from retailers for the cost of accepting payments from cardholders. Though the fees hit all retailers, and a portion of them is passed on to consumers in the form of higher prices, low-margin businesses like independent corner stores or gas stations face a higher percentage of these costs relative to their revenue.

Since the start of the pandemic, the fees have increased by up to 40 percent, rivaling rent as the second-highest overhead cost for independent stores. Visa and Mastercard, which together control over 80 percent of the credit card market, effectively get to set the rates for fees by blocking competitive alternatives for the transaction routing at card terminals.

A bipartisan coalition led by Sens. Dick Durbin (D-IL) and Roger Marshall (R-KS) is aiming to alleviate the burden on small businesses through the Credit Card Competition Act (CCCA). The legislation would force card issuers that host these transactions (Visa and Mastercard) to enable competitor networks to manage the processing and routing—the service for which swipe fees are levied. By providing businesses with competing options, they can choose the service with lower fees.

For Democrats and anti-monopoly advocates, it’s another manifestation of the Biden administration’s crackdown on “junk fees” across sectors of the U.S. economy. As swipe fees skyrocketed this past year, the legislation has also drawn more Republican support than ever before.

In the legislative scrum over the annual defense authorization bill this month, backers of the CCCA pushed for its inclusion, as they had the previous year under the catchall national-security designation. During negotiations, Sen. Marshall even threatened to hold up the defense bill if the CCCA didn’t at least receive a vote.

One major setback was that the bill’s longest-running champion, Sen. Durbin, was sidelined during the height of negotiations because he caught COVID. However, both Marshall and Durbin announced that party leadership guaranteed them a stand-alone vote on the bill this fall, ending the defense bill fight. Neither senator could be reached for comment on the bill’s future.

“We see it as a small victory as the chorus of voices calling for reform grows louder and Washington is hearing us,” said Doug Kantor, the general counsel for the National Association of Convenience Stores, a member of the Merchants Payment Coalition. MPC led the charge to get legislation passed in 2010 that allowed for similar competition in debit card transactions, known as the Durbin Amendment. If leadership follows through on its promise to bring the CCCA to a vote, the coalition is confident they’ll have enough support to apply the same standard to credit cards.

Since the start of the pandemic, the fees have increased by up to 40 percent, rivaling rent as the second-highest overhead cost for independent stores.

The bill’s recent advances are setting off alarm bells on Wall Street. The bank and credit card lobby is marching in lockstep with conservative dark-money groups to inflame culture-war issues on the right in the hopes of splintering the cross-partisan coalition that’s coalesced around the bill.

In a recent ad campaign, shadowy right-wing groups have been issuing mailers and other advertisements claiming the CCCA is a liberal handout for “woke” big-box retailers like Target. One set of mailers was bankrolled by the Conservative Accountability Foundation, a newly formed organization based in Sen. Marshall’s home state of Kansas but without a listed address or phone number.

The mailers draw upon a recent controversy from earlier this summer. In celebration of June’s Pride Month, Target issued a line of LGBTQ merchandise, which drew backlash from conservatives mostly online and then sparked a boycott campaign. Target ended up caving to pressure, and removed its pride merchandise from numerous stores and its website.

It’s always been more convenient for the banks and credit card companies to frame large retailers like Amazon, Target, and Walmart as their main opponents in the swipe fee battle. These corporate stores do form an uncommon alliance with small-business groups on swipe fees, though the latter are the main ones driving the issue. What’s new is for the financial lobby to attack the large retailers on the basis of participating in Pride Month.

Intended for a conservative audience, the attack ads are directed at Sen. Marshall and other Republicans for their support of the bill, which they call a “bailout” for Target. The text reads, “Target hates conservatives but Sen. Marshall’s bill gives them billions,” with the company’s logo emblazoned with rainbow colors.

In a statement to Punchbowl News, which first reported the mailer, Sen. Marshall’s chief of staff Brent Robertson said: “When low-rent DC grifters come out of the woodwork with a big bank funded (c)4 like this, we know we’re doing something right for the working family.”

An ad campaign on Facebook this past month by Americans for Tax Reform (ATR)—Grover Norquist’s organization—pushes the same narrative, with the slogan “Side with consumers, not woke retailers.”

The mailer also taps into national-security fears about Chinese influence inside the U.S. The Chinese national flag flies in the background behind a cutout of Sen. Marshall next to a rainbow gay pride flag. It then says, “your financial data could be processed by partners of the Chinese Communist Party.”

Financial interests have long used this talking point, that competition in routing would make consumer financial data less secure. But they’re now attaching it to a broader hostility among conservatives toward China. The CCCA includes provisions blocking foreign-owned companies, and specifically China UnionPay, from participating in the transaction routing networks.

“There’s a certain desperation because it’s hard to make a legit conservative case against a bill that is designed to protect small businesses from what is, in effect, a monopoly tax on their revenue,” said Stacy Mitchell, the co-executive director of the Institute for Local Self-Reliance.

Op-eds in local newspapers in red states are parroting the same line about foreign threats to Americans’ financial information. At the end of June, one piece in The Florida Standard equated competition in transaction routing to Chinese surveillance on social media platform TikTok. The author, Samantha Beeler, is the president of the League of Southeastern Credit Unions, which spent $20,000 on lobbying this past quarter to oppose the CCCA, according to disclosure forms. The credit card industry has relied on the nationwide network of credit unions as surrogates for years to do its bidding.

The ATR did not respond to a request for comment to clarify their opposition to the legislation.

Talking points about woke retailers and China have made their way into lobbying on the Hill, according to numerous groups involved in the legislative fight. In addition to ad campaigns, banks and credit cards are funneling millions to lobbying campaigns to beat back the push for swipe fee reform. The American Bankers Association spent close to $5 million this year on issues including the CCCA, while the Credit Union National Association laid out over $2 million in the past two quarters to lobby on swipe fees, according to lobbying disclosures. Mastercard supplemented these conjoined efforts with almost $200,000 of its own firepower last quarter to four different lobbying shops.

Wall Street’s efforts to stir up a culture-war battle over financial regulation clash with its recent posturing over the past several years, as the face of corporate initiatives to promote diversity, equity, and inclusion (DEI). The top banks and credit card companies routinely pledge support for LGBTQ inclusivity and diversity in hiring. Some firms held their own Pride Month celebrations this summer.

Both Wall Street and corporate America have in recent years used liberal social causes to stymie legislative reforms that threaten their interests. Most recently, Big Tech killed an antitrust bill last year in part by arguing that the bill would harm minority small businesses and by painting anti-monopoly groups as anti-trans.

“It’s increasingly becoming a Republican talking point to go after companies for supporting social inclusion … That should raise questions for Democrats about what is motivating these bills,” said Adam Kovacevich, CEO of Chamber of Progress, a tech trade group representing Amazon, Google, and Facebook, to Politico at the time.

The credit card lobby and their front groups are flipping the script by using conservative boycott campaigns to their advantage.

UPDATE: After publication, League of Southeastern Credit Unions President Samantha Beeler responded with the following statement: “Last year alone, more than 422M consumers were impacted by a data breach. At a time when fraud is running rampant due to the negligence of others to secure consumer data, Americans cannot afford a cheaper, less secure system.”