Interchange in federal sights – again

Retailers may have lost the battle over interchange when they failed to convince the U.S. Congress to add strong language about interchange to the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (Credit CARD act), which was signed into law in May. But they haven't given up the fight.

The Credit Card Fair Trade Act, HR 2695, was introduced June 4, 2009, by Rep. John Conyers, D-Mich, who is Chairman of the House Judiciary Committee. The proposed bill would create a special exemption from federal anti-trust law so retailers could negotiate "access" to electronic payment systems en masse.

The bargaining table

HR 2695, which closely mirrors legislation that was approved by the House Judiciary Committee in 2008 but didn't progress further, would allow for a limited number of parties around the negotiating table, as follows:

• A representative of one of the 10 largest issuers, in terms of number of cards issued
• Someone representing one of the 10 largest acquirers, in terms of number of merchants served
• An executive from one of the 10 largest merchants, based on the total value of card payments accepted the previous year
• Someone from the U.S. Department of Justice

Acquirers, issuers and merchants would each have to provide itemized lists of costs incurred in providing or using card acceptance services the previous year. Only issuers and acquirers that are also federally regulated credit unions would be exempt from the process.

A lose-lose proposition

Mallory Duncan, Senior Vice President and General Counsel at the National Retail Federation, said that in the wake of the Credit CARD act, the Conyers bill creates "the perfect storm" for congressional action on interchange. And he raised the specter of the economy, arguing "consumers can't continue to pay artificially inflated prices just so the credit card industry can skim profits off the top."

Not so, countered Edward Yingling, President and Chief Executive Officer of the American Bankers Association. Interchange serves an important purpose, and retailers just want to get out of paying their fair share, he countered.

"The bill introduced today represents an effort by the merchant community to have the government interfere with the payment system so that they can reduce their cost of doing business," Yingling said in a June 4 statement. "It's clear that giant retailers want to pocket interchange revenue, and continue to receive the added convenience and protection payment cards provide."

HR 2695 has not yet been scheduled for public hearings or other congressional activity. Some Washington insiders suggest the move is mostly symbolic. They note that both retailers and banks are key constituencies that lawmakers aren't eager to alienate, especially in the current economy. And anyway you cut it, one of those constituencies loses with interchange legislation.

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