Banks Urge Congress to Close Stablecoin Loophole Threatening Credit Cards

An urgent request from several financial trade groups to Congress urges immediate action to close a loophole in the recent stablecoin legislation that threatens to reshape the payments market.

The letter argues that yield-bearing stablecoins in payments could divert card transactions by lowering transaction costs, speeding up settlement, and combining rewards through token-based payments. Left unchecked, the migration could reshape competitive dynamics beyond the scope of current regulation.

The bank groups that authored the letter include the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, and Independent Community Bankers of America.

GENIUS Act provisions would have more controlled stablecoin issuers like banks and merchants come into the mix and compete with credit cards for everyday spending, even as Visa and Mastercard expand their own blockchain capabilities. 

But questions remain about consumer adoption, regulatory clarity, and how quickly users can make the switch. Other provisions — such as the Credit Card Competition Act and the envisioned APR limits — have raised issuer concerns about profitability and market stability.

Up to $6.6 trillion in deposits could move into stablecoins as a result of the current regulation. That shift could make credit card businesses less profitable, weakening their incentive to offer competitive rewards and APRs.

Mass migration may raise banks’ cost of funding, persuade lenders to cut credit, and activate the use of digital wallets. Companies like Upgrade and Gemini are experimenting with hybrid reward structures that combine cash back and crypto rewards on the same card to retain consumer engagement.

A key exemption in the GENIUS Act allows stablecoin issuers affiliated with banks or merchants to offer interest-bearing products without being subject to the same regulations as commercial banks.

This exemption provides the promise of reduced fees, built-in perks such as cash back or token-based rewards, and head-to-head competition on interest rates and charges along the same lines as credit cards.

More voices are calling for a single national licensing system — both to stop regulatory arbitrage and to hold all market participants to the same rules.

If large sums are transferred by prime consumers to safe-haven crypto such as stablecoins, the card issuers may cut perks, raise APRs, or adopt blockchain-based settlement solutions.

Others are developing tokenized credit and global payment systems designed to lower fees for users on both ends.

As issuers respond to new pressures, consumers may face higher interest rates, stricter underwriting, and fewer rewards. Without carefully designed guardrails, these changes could limit financial flexibility and make credit less accessible for subprime borrowers.

Proponents are concerned that, without protections, subprime consumers may miss out on credit card-like terms or innovation gains that could otherwise improve access and flexibility.