The Credit Card Competition Act of 2023 (CCCA) is proposed legislation originating in the US Senate that seeks to amend the Electronic Funds Transfer Act to include a number of key provisions, including:

•  No Exclusive Networks: Prohibits covered card issuers—card issuers that, together with their affiliates, have assets of more than $100 billion—from restricting transactions to a single network. The CCCA would also require at least one of the networks over which a transaction may be routed not be one of the largest two networks by share of credit cards issued.

•  No Routing Restrictions: Limits restrictions on merchants and acquirers who make transaction routing decisions. Covered card issuers and networks would be prohibited from imposing penalties or disadvantages for directing transactions or imposing minimum transaction volumes. The CCCA would also impose limitations on requirements for the exclusive use of security technology that cannot be used by all networks and prohibits inhibiting other networks from using a security technology.

• Applicability: Credit cards issued in a three-party system model would be exempted from the No Exclusive Networks and No Routing Restrictions provisions.

NERA was retained by JPMorgan Chase to analyze the potential economic impacts of the CCCA. A team led by Managing Director Ling Ling Ang, Director Alan Grant, and Consultant Peter Traber reviewed the CCCA and assessed its potential impacts, drawing on literature on previous US regulatory policy associated with payment instruments and two-sided markets.

NERA prepared a report on the potential economic impacts of the CCCA that included several key takeaways:

• The exclusion of three-party system issuers from the No Exclusive Networks and No Routing Restrictions provisions could artificially advantage three-party systems over covered issuers and covered four-party system networks. This could create opportunities for three-party systems to gain share.

• Implementation of the CCCA shifts the network routing choice from the consumer to the merchant. Merchant choice of network routing would likely decrease interchange fees. An interchange fee decrease reflects a shift in the balance of costs from the merchant side to the consumer side without an increase in market efficiency or a total decrease in the total price of processing a credit card transaction. There are circumstances under which interchange fees may remain the same or increase if entrant networks do not find it optimal to price below incumbent interchange fees or compete aggressively for issuers due to competitive pressures from three-party networks or non-covered issuers.

• Credit card rewards are likely funded primarily by interchange fees. A reduction in interchange fees for cards issued by covered card issuers could lead to reductions in credit card rewards from covered issuers. Consumers with options to switch to rewards cards from three-party system or non-covered issuers might do so, while consumers who do not have the option to switch may face lower rewards and higher costs. This migration of consumers could change the customer mix for covered issuers and lead to covered issuers facing a riskier pool of potential consumers (e.g., consumers who are more likely to default on credit card debt). Consumers may also substitute to other methods of payment, such as debit, cash, and other options available at point-of-sale.

•  There is potential that, if credit quality correlates with demographic or income factors, the incidence of the CCCA’s consumer impacts would also likely correlate with those factors. These outcomes are likely to be more prevalent among demographic groups that are disproportionately assessed to be lower credit quality because of their inability to migrate to maintain current rewards.

• The extent to which acquiring services providers (i.e., acquirers, payment facilitators, ISOs, and other intermediaries) and merchants pass-through reductions in interchange fees through consumer prices is an open empirical question. To date, there is scant evidence of reductions in interchange fees being passed through to lower prices of goods or services.

•  The CCCA could induce the entry of additional four-party system networks. The effects of the entry of four-party system networks may not be beneficial to consumers or merchants; in analyzing the effects of entry, one should take into consideration the role of networks in balancing consumer, issuer, acquirer, and merchant interests and the central role card networks play in network quality, transaction security, and investment in improved network quality.