Legislation seeking to establish a clear regulatory framework for stablecoins has drawn pushback from the financial services sector over a requirement pertaining to credit card transactions. Critics claim this provision will increase fraud risk and increase credit costs.
The bill’s proponents believe the GENIUS (Guiding and Establishing National Innovation in U.S. Stablecoins) Act could be beneficial to digital assets tied to the U.S. dollar.
“They can improve transaction efficiency, expand financial inclusion, and strengthen the dollar’s supremacy as the world reserve currency by driving demand for U.S. Treasuries,” Sen. Bill Hagerty (R-Tenn.) said in a statement. “The previous administration’s hostility toward crypto and refusal to provide clear regulatory guidelines have severely stifled stablecoin innovation.”
The legislation proposes to define a payment stablecoin as a digital asset used for payment or settlement that is pegged to a fixed monetary value and establish clear procedures for institutions seeking licenses to issue stablecoins.
It would stipulate how federal and state regulators would approach regulatory concerns associated with institutions that issue stablecoins. Institutions with more than $10 billion in stablecoins would have those assets regulated by federal agencies while institutions with less than $10 billion in stablecoins would be subject to state-level regulations.
However, several trade groups are opposed to the fact the legislation was amended to include the “Durbin-Marshall Credit Card Mandate,” which would require large credit card-issuing financial institutions to provide at least two credit card networks for processing transactions.
The trade advocates compared the mandate to the “Durbin Amendment,” a provision of the Dodd-Frank Act capping interchange fees for debit card transactions to reduce costs for merchants accepting debit cards. It also required debit cards to be processed on at least two unaffiliated networks.
“This poison pill amendment, which expands on the misguided routing requirements imposed by the Durbin amendment to credit cards issued in the U.S., would harm consumers, small businesses, and banks alike by reducing card choice, increasing fraud risks, reducing rewards, increasing the cost of allocating credit to borrowers, and creating economic challenges for smaller financial institutions,” the groups wrote in a letter to all members of the Senate. The letter was endorsed by the American Bankers Association and 52 state banking associations. In the letter, the financial trades emphasized the potential disadvantages for small businesses stemming from government intervention in the credit card market.
The trade groups pointed to findings included in a 2024 paper by a University of Miami finance professor that found that almost all of the savings from the Durbin-Marshall mandate will accrue to retailers with $500 million or more in annual sales, with little going to small businesses.
“The legislation will do nothing to help small businesses – it will only entrench corporate megastores that already have a stranglehold on the retail market,” the trade groups wrote. “Congress should not mandate the reengineering of the entire credit card payments system just to benefit a small group of the largest merchants while causing small businesses to suffer.”