NEIGHBORHOOD STORE ASSOCIATION
Spring 2008
Vol. 10 No. 1
Federal action on credit card interchange fees Anticipated
Last year, the House Judiciary Committee’s Antitrust Task Force received testimony on the practices used by the major credit card companies in establishing credit card interchange fees. As retailers well know, the cost of these fees is averaging close to two percent on every transaction. However, consumers are less aware of the fact that interchange fees in the U.S. are among the highest in the world and that to cover the cost of increasing interchange fees, they are paying higher prices for everything — even if they don’t use credit cards.
The Merchants Payments Coalition, whose membership includes retailers, department stores, supermarkets, convenience stores, gas stations and on-line merchants, has been lobbying Congress to take action on the issue of credit card interchange fees and a new bill –Credit Card Fair Fee Act– will soon be introduced by U.S. House Judiciary Committee Chairman John Conyers (D-MI) and Rep. Chris Cannon (R-UT). The National Association of Convenience Stores, also a member of MPC, is urging retail members to encourage their congressional representatives to co-sponsor and support this legislation.
It is not difficult for ONSA retail members to explain how much rates have gone up and how significant these costs are to their business. Retailers, in general, point out the existing system of establishing credit card interchange fees does not allow merchants to negotiate fair market interchange rates. Further, the system is so complicated that few merchants understand all the rates and rules. With Visa and MasterCard controlling 80 percent of the credit card market, merchants have little choice but to accept the credit terms offered, in order to stay in business and keep pace with the growing popularity of credit cards. In some situations, gasoline retailers for example, the issue of staying is business is challenge enough when interchange fees exceed the profit earned on each gallon sold.
The Merchants Payments Coalition has been working to convince Congress that the practices of Visa and MasterCard in setting interchange rates are a violation of federal antitrust laws. Negotiations occur between card issuers and their member banks, while merchants are excluded from the process. The credit card interchange fees are established in secret and not adequately disclosed to merchants or consumers.
The result is that even though the actual cost of processing credit card transactions for the banks has decreased, because of improved processing technology, increasing card volume, and low interest rates, the credit card interchange rates continue to increase. Across all industries, Visa, MasterCard and their issuing banks collected $16.6 billion in credit card interchange fees in 2001. In 2006, Americans paid over $36 billion in interchange fees.
Visa and MasterCard are arguing that merchants and the Merchants Payments Coalition are advocating in favor of price-control legislation. However, the Credit Card Fair Fee Act proposes to utilize a system similar to how the music industry negotiates compensation for composers, writers, and musicians, in order to bring merchants and credit card issuers together in an open, two-sided market process to negotiate credit card interchange fees.
While the Credit Card Fair Fee Act has not been formally introduced and assigned a bill number, the efforts of the Merchants Payments Coalition have garnered congressional attention. Earlier in February, HR 5244, the Credit Card Holders’ Bill of Rights Act, which requires the Federal Reserve Board to annually report to Congress on how much banks earn from merchant fees, was introduced.Inside:
Ninth Circuit Court of Appeals Upholds Washington’s Three-Tier System
High Gasoline Prices Are Consumers’ Top Concern, According to NACS Report