The Green Sheet Online Edition
September 28, 2009 • Issue 09:09:02
Insider's report on payments
Summer musings on interchange
The brouhaha over health care reform that made headlines in August 2009 accomplished at least two things: It educated folks about the "August recess" - the congressional equivalent of summer vacation - and it provided time for opponents of credit card interchange to reconnoiter.
Meanwhile, halfway around the globe, the Reserve Bank of Australia (which has been regulating card interchange for the better part of a decade now) revealed it had opted not to loosen credit card interchange rules, although it also said it had no plans to tighten the rules either. The RBA also said it intended to review the caps it has imposed on debit card payments to bring them more in line with credit card fees.
In a statement released on Aug. 26, the RBA said it "concluded that, although progress has been made in both these areas [credit and debit interchange], it is not yet sufficient to warrant a decision to step back from interchange regulation."
A war of words
Not surprisingly, retailers in the United States were heartened by the RBA announcement. "It's time that U.S. policymakers followed their counterparts around the world to reform the swipe fee system that continues to abuse merchants and consumers in this country," said Lyle Beckwith, Senior Vice President for Government Affairs at the National Association of Convenience Stores.
But the war of words didn't stop there. In a mass e-mail distributed in mid-August, the NACS urged members to attend local congressional town hall meetings and let their voices be heard on interchange reforms.
"Stand up at these town hall meetings and ask your representative and senators to side with business owners rather than the credit card companies," read the message. "Ask them to co-sponsor the Credit Card Fair Fee Act (H.R. 2382)." It continued: "Just because the popular noise of the day is centered on health care does not mean that other issues of significant importance go away."
H.R. 2382 is one of three bills that addresses interchange. It specifically tackles issues related to merchant contract terms and charges and directs the Federal Trade Commission to regulate fee setting and other acceptance rules. At least two convenience store chains have taken the message directly to consumers. 7-Eleven Inc. and Circle K Stores Inc. said they aim to collect 1 million signatures each to dump on Congress. At the 7-Eleven I frequent, there's a petition on the front counter (a spot traditionally reserved for impulse purchases) urging customers to join the battle against "unfair credit card fees." The last time I was there, however, the petition looked to be sparse on signatures.
One reason, I suspect, is that many consumers simply don't believe that a company like 7-Eleven (where "convenience" translates as "pay a premium for not having to trek to the grocery store for one item") is looking out for the best interests of consumers.
There's also the issue of convenience. Credit cards, after all, are more convenient than cash, from both the buyers' and sellers' perspectives. Heck, even the major airlines are eschewing cash these days.
Providing what customers want
Consumers like to pay with plastic. The proof is in the data. According to the World Payments Report 2009, noncash payments were up 8.6 percent globally in 2008, driven primarily by credit and debit cards. The report - a product of Capgemini U.S. LLC, the Royal Bank of Scotland and the European Financial Management & Marketing Association - said card payments grew 11.2 percent in 2008, following a 14.5 percent spike in 2007
I also suspect the typical American doesn't much care if it's going to cost the local merchant more to accept cards than cash or checks. But if I've learned one thing in my years of observing the inner workings of Congress, it's that lawmakers can be swayed by the sheer intensity of constituent rage, even if those constituents are outnumbered.
That's why the card acquirers and their partners need to turn up the rhetoric in support of interchange. The Electronic Payments Coalition, a group of banks, credit card companies and industry trade groups (including the ETA), took a step in that direction in the days following the congressional August recess, running a full-page advertisement in a publication widely read by members of Congress and their staffs.
"It's not enough that convenience stores overcharge for what you buy. Now, they want to overcharge you for how you pay," the ad reads in part. It features a bogus sales receipt detailing typical convenience store markups on items such as milk, bread and sandwich meat. "Talk about putting the 'con' in convenience store!" the ad calls out.
New bureaucracy in the works
Winning any legislative battles over interchange, however, will require more effort. Banks and their partners are not among the most liked folks in Washington.
The president made that clear in a widely reported speech in New York on Sept. 14, when he warned financial executives that it was getting to be payback time for all the money Uncle Sam pumped into the financial sector in the aftermath of the 2008 meltdown, and new regulations are part of the payback.
To that end, the Obama administration has proposed sweeping reforms of the financial services sector. Interchange is not yet a target of these reforms, but that's not to say the topic won't come up.
One aspect of the proposed reform package card industry executives may want to keep close tabs on is the establishment of a federal consumer financial protection agency. The agency would assume powers currently wielded by bank regulatory agencies and the FTC and would have authority over payday lenders and other financial services companies that lack government supervision.
A U.S. Department of the Treasury tome detailing the proposed legislation (Financial Regulatory Reform: A New Foundation) explains that the Consumer Financial Protection Agency would have jurisdiction over "consumer financial services and products such as credit, savings and payment products and related services, as well as the institutions that issue, provide or service these products and provide services to the entities that provide the financial products."
Hearings on the administration's regulatory reform package were scheduled to begin before the House Financial Services committee this month and continue through October. Washington insiders have suggested, however, that a final vote is unlikely during the current session of Congress.
Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. E-mail her at firstname.lastname@example.org.
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