The Green Sheet Online Edition
August 13, 2007 • Issue 07:08:01
Congress grills warring parties on interchange
Trying to keep an open mind,
without rushing to any
judgment, it doesn't look
so good for the credit card
companies," Rep. John Conyers said
by way of opening a July 19, 2007,
U.S. House of Representatives Judiciary Committee hearing on
Conyers, D-Mich, is Chairman of the
committee's Antitrust Task Force. He
suggested the issues at hand boil
down to whether interchange fees are
increasing too rapidly and impose
unfair costs on consumers, and whether
credit card companies are engaged
in anti-competitive behavior.
Interchange is the fee paid to a cardissuing
bank by the card-acquiring
(or merchant) bank. Interchange
rates, a percentage of sales as set
by Visa U.S.A. and MasterCard
Worldwide, vary by retail sector,
type of card, transaction amount
(large-dollar versus small-dollar)
and authorization procedure.
John Buhrmaster, head of the
First National Bank of Scotia,
spoke against interchange regulation
on behalf of the Independent
Community Bankers of America.
Timothy Muris, of O'Melveny &
Myers LLP also voiced opposition to
Mallory Duncan, of the National
Retail Federation, advocated for
interchange regulation. Duncan was
joined by Edmund Mierzwinski, of
the U.S. Public Interest Research
Group, and Steven Smith, head of KVA-
T Food Stores Inc. and Chairman
of the Food Marketing Institute's
board of directors.
Acknowledging that the fees have
increased in recent years, Buhrmaster
and Muris each testified that the fees
are simply part of the normal cost of
Customers get the convenience of
having a line of credit in their pockets.
Merchants do not have to set up
in-house credit programs.
And small banks benefit because
they can participate in the system
and "stand toe-to-toe on both the
issuing and acquiring sides of the
business," Buhrmaster said.
Imposing pricing controls on such
fees, Muris said, would stifle the
market, limit the products credit
card companies offer and hurt
Time to step in?
Those in favor of government intervention said the card
Associations' interchange fee practices constitute monopolistic,
antitrust behavior that harms merchants and consumers
Duncan denied that the retail industry is seeking price
controls. He said the problem is that interchange fees have
risen rapidly in a process that is hidden from merchants
"This market is broken," Duncan said. "It needs transparency
and genuine competition. Currently Visa and
MasterCard do not battle for merchants. They battle to get
banks to issue their cards. It is the only market in which
competitors compete by raising prices," in order to entice
banks to issue their cards.
No quick fix
Buhrmaster said the market is competitive and that merchants
are free to do business with the card Associations,
make deals elsewhere or even to refuse credit cards altogether.
He cited Costco, which only accepts American
Express Co.-branded cards.
Smith replied that accepting Visa- and MasterCardbranded
cards isn't optional: Since credit card use now
accounts for 60% to 65% of consumer purchases, and
the card Associations control 80% of credit card transaction
volume, retailers cannot refuse to accept their cards.
Smith also said that while other costs of doing business
are negotiable, interchange fees are not.
Conyers said several more hearings would be necessary
before a resolution could be found.
The ETA weighs in
Jim Baumgartner, President of the Electronic Transactions
Association (ETA), and the ETA's government relations
staff met with senior House Judiciary Committee staff
before the hearing.
"We took the opportunity to press for one of the key
tenets of the ETA's 2007 Industry Relations Policies that
supports private sector governance of interchange and
opposes any government effort to regulate or establish
price controls on interchange rates," Mary Dees Griffith
posted on GS Online's MLS Forum. Griffith, President and
Chief Operating Officer of Preferred Health Technology,
chairs ETA's government relations committee.
The ETA's complete policy positions are online at
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