The Credit Card Amendments Putting the GENIUS Act at Risk

This analysis is in response to breaking news and will be updated. Please contact pr@rstreet.org to speak with the author.

Stablecoin legislation has made its way to the senate floor where two credit card amendments may put the entire bill at risk.

The Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 (GENIUS Act) would provide a regulatory framework for U.S. domiciled stablecoins. Part of the broader cryptocurrency landscape, stablecoins are pegged to reserve assets such as national currencies or commodities and seek to provide more price stability than other types of cryptocurrency.

While the GENIUS Act has received bipartisan congressional support and broad industry praise, two amendments may derail the otherwise meaningful legislation. This includes the Credit Card Competition Act (CCCA) amendment filed by Sen. Dick Durbin (D-Ill.) and the Cap on Credit Card Interest Rates amendment filed by Sen. Josh Hawley (R-Mo.). Both bills are effectively price controls on credit cards, albeit in different forms, as described below:

The Credit Card Competition Act

The CCCA is a piece of legislation which attempts to mandate competition on credit cards, an already competitive market, by requiring at least two unaffiliated payment networks to process interchange, applicable only to the so-called credit card “duopoly.” R Street has written extensively about issues with interchange price caps more broadly and the CCCA specifically, including dismantling credit card rewards programs and harming card security, which are the two most popular reasons consumers select particular credit cards. Additionally, the legislation would cede more power to the Federal Reserve (the Fed) by putting it in charge of enforcement, transfer wealth to the largest merchants who have outsized bargaining power, and potential for reductions in access to credit for lower income individuals. Much of this is evidenced by the real-world impacts of similar price controls placed on debit cards as part of the Durbin amendment Dodd-Frank act. Since then, access to free and reduced fee checking has been dramatically reduced, debit card rewards programs are a thing of the past, and consumers never saw any fee savings. In fact, twenty-two percent of retailers raised prices on goods and services as evidenced by research from the Federal Reserve Bank of Richmond.

Cap on Credit Card Interest Rates

Recently filed legislation from Sens. Hawley and Bernie Sanders (I-Vt.) would amend the Truth in Lending Act to cap credit card interest rates at ten percent, inclusive of all finance charges. Many of the consequences of such legislation are obvious, including severely reduced access to credit and perhaps even destroying the credit card system altogether, and at the very least incentivizing poor financial habits. But similar to the CCCA, historic precedent of similar acts exist, which show the devastating effects of credit price controls. In the face of rampant inflation that plagued Jimmy Carter’s tenure as president, he attempted to implement credit price controls via the Federal Reserve and the Credit Control Act (CCA). Originally passed in 1969, the CCA allowed the president to authorize the Fed to “regulate or control any or all extensions of credit […] for the purpose of preventing or controlling inflation.” Carter authorized the Fed to implement the CCA in 1980 after years of double-digit inflation and interest rates. The negative effects that followed, including consumer sentiment which dramatically reduced spending and compliance confusion among lenders, were so severe that just a few short months later, Carter rescinded the Fed’s CCA authorization. The subsequent rebound was sharp enough that the CCA was altogether dismantled by Congress in 1982, due to the ultimately disastrous effects.

Examining Current Attempts at Credit Price Controls

It is clear that regulation often has unintended consequences, and in financial services and lending, this frequently comes at the expense of individuals or issues that the regulations purport to help. With both the CCCA and credit card interest rate caps, a variety of negative second order effects are obvious and clear as evidenced by similar regulatory controls of the past. Most notably, consumers are far more likely to be harmed when the government feels the need to reduce consumer choice and access to credit through bureaucratic controls instead of allowing free market forces to guide outcomes. It would be a mistake for Congress to allow these amendments to weaken an otherwise strong bill.