The Effects of CCCA: Impacts to Fraud & Consumers with Glenn Grossman // Cornerstone Hot Takes

So, Glenn, the other regulation that’s out there that is looming, I’m going to call it, although not effective, is CCCA.

Yeah.

Now, you just did a really robust study on that. What did you find as you did the evaluation of that? We touched a little bit on what it was, but talk a little bit about that.

Yeah. Like most things, there are a lot of unintended consequences that can happen.

And what we see from this is that the routing that they want to create, one of the biggest concerns is that the likely suspects to create these new networks to route these cards have a history of putting the fraud that happens back onto the issuer.

Right.

And also, they don’t have a history of investment in that because they haven’t had to, to be fair.

Right.

So that’s a big issue. When you had a PIN on there, that was the protection.

Exactly.

And once you take that off in a card-not-present environment, it goes away.

Yeah. And the second fraud piece, a lot of people just don’t realize, because we swipe a card, we don’t even think about it.

Right.

So today, all that traffic goes down the Visa or Mastercard pipe.

Mm-hmm.

And they have the ability to look at all these transactions at a global level, billions and billions of transactions.

Right.

Makes for smarter fraud detection.

Right.

Now imagine all of that being broken up into smaller organizations.

Smaller volumes.

Right. Less readable data.

So who wins there? A fraudster, because it’s a little harder to detect. Now I’m going down all these different avenues.

Right.

And we know one thing about fraudsters, they’re always going to find the path of least resistance.

Exactly.

So they will figure out which of these other networks that, to your point earlier, don’t necessarily even exist yet, aren’t going to be prepared to handle this volume in a fraud-protective way.

That’s right.

Another thing that a lot of people enjoy is they don’t have to pay an annual fee on a credit card.

Mm-hmm.

Now, if you’re a card-issuing institution and revenue gets tightened, you’re going to have to figure out what to do. And for a lot of folks, it is actually the annual fee that could be that first lever to come.

Mm-hmm.

And what the government’s own data has shown is that those who are most financially fragile, who are in these lower FICO bands, have seen their annual fees decline over the years.

This could reverse all of that.

Right. Not to mention the underwriting.

Yep.

So now I don’t make as much money on these transactions. Now I can’t lend as deep.

That’s right.

So folks who are eligible for credit today, we see all these products out there to help people build credit and establish credit, those folks now could fall out of the credit cycle.

Exactly.

And not be allowed to, or enabled to, have these credit products because it’s so much more expensive to operate.

Now this is a domino effect as you start shrinking the opportunity for credit. So that limits credit availability. Credit lines for everyone could see shrinkage.

Absolutely.

Where does that money go? To the merchant.

Right.

So the merchant is supposed to save money. They can actually lose money here because people can’t spend as much.

And people spend more.

And people spend more. So you have to say, studies show this. People do spend more when a credit card is available.

Absolutely.

Last thing is, and I know we’re running a little bit long here, but the $100 billion threshold is a bit of a red herring, isn’t it?

Because, similar to what we saw with the original Durbin Amendment, everybody’s margins go down as a result. The market forces will impact even issuers below that, and they will see the interchange get squeezed on them a little bit.

To be fair, the larger institutions at $100 billion will probably see a bigger impact.

Sure.

And what some smaller issuers are concerned about is the merchants could get a little crafty and say, “Hey, this card was issued by a more expensive issuer. I don’t want to take your card.”

That’s right.

And you compound that with the fact that they can already surcharge.

Right.

So if they surcharge and get lower rates, sounds like they’re actually making money on this exercise.

Making money.

They’re not...

Right.

Absolutely. Another thing that a lot of people think is that the money is going to go to the consumer.

Right.

Which has never been proven.

It’s never been proven.

And if you do the math on how much they could save, it would just be, on a $100 transaction, pennies.

Right. On an individual item.

Yeah.

So no one’s going to notice it except the merchant.

Except for the merchant and their shareholders.

Yeah.

So we could call it merchant shareholder legislation. That is all it is.

Yes.