The battle to introduce limitations and regulations on interchange rates set by Visa Inc. and MasterCard Worldwide is heating up on Capitol Hill. On March 6, 2008, Reps. Chris Cannon, R-Utah, and John Conyers, D-Mich., introduced the Credit Card Fair Free Act (HR 5546) to address the "anti-competitive and secretive" aspects of credit card interchange fees.
"This bill does not set prices," Cannon said. "Instead, it would require that fees be set in a transparent manner so other companies can compete for business, and consumers would not pay artificially high rates."
According to Cannon, credit card companies should set whatever fees the market will tolerate. "This bill is a win for consumers, for retailers and for the credit card industry, which will benefit from competition," he said.
The argument for implementing the bill is this: Each year, consumers indirectly pay billions of dollars in fees that never appear on their monthly statements. Card Associations and their member banks charge interchange to retailers whenever a credit card is swiped; up to $2 of every $100 spent goes to interchange.
In 2007, more than $42 billion in interchange fees were collected, up 17 percent from the previous year and 150 percent combined since 2001.
Retailers reportedly are not allowed to offer lower prices for cash or debit transactions because of their agreements with Visa and MasterCard.
Congress contends that the market for credit card interchange fees is broken and that Visa and MasterCard are abusing their market power. This is price-fixing, they insist, and it needs to stop.
There are three primary methods under consideration for fixing perceived antitrust problems:
Merchants urged Congress to take the third approach and adopt the act just introduced. This proposed solution would allow merchants to negotiate as a group with Visa and MasterCard.
The card Associations would also be free to separately negotiate with individual companies or groups of companies. Any agreements reached would be public.
The Federal Trade Commission and The Department of Justice would appoint three decision makers to hear from each side if negotiations are not successful. This panel would be charged with deciding the rates and terms that would prevail in a functioning, competitive market.
The act would only apply to credit card companies with 20 percent or more of the market share. This means Visa and MasterCard would adhere to the rules, but not American Express Co. and Discover Financial Services.
Conyers said the act would help "level the playing field for merchants and retailers negotiating with banks for the cost of certain fees and ultimately reduce the costs of everyday goods for consumers."
Almost 90 percent of the fees merchants are charged every time a consumer uses a credit card comprise the interchange fee, according to Conyers.
"The percentage is set by Visa and MasterCard and averages 1.75 percent of the total purchase," he said. "These fees are ultimately passed on to all consumers in the form of higher prices for goods and services, regardless if these items are purchased with credit cards, cash or checks."
Merchants have no choice but to deal with this system. "They are presented with take-it-or-leave-it options and are not part of the process by which the fees are set," Conyers said.
Conyers makes it clear that the act is intended to give merchants a seat at the table in the determination of these fees, not an attempt to regulate the industry.
"[The act] simply enhances competition by allowing merchants to negotiate with the dominant banks for the terms and rates of the fees," he said.
The Electronic Payments Coalition - dedicated to protecting consumer value, choice, and competition in the electronic payments systems - issued a statement in response to the price control legislation.
The EPC believes government intervention could never match the ability of the free market to determine appropriate price for services.
It "strongly opposes" the bill, stating the legislation "would establish a government rate-setting board that would impose price controls on the electronic payments system - despite these groups' years of denials that price controls were their ultimate goal."
"Consumers will see no economic benefit from such price control legislation," the EPC stated. "This legislation is a thinly-veiled attempt by members of the Merchants Payments Coalition to lessen their own costs of doing business.
"In other countries where government intervened, consumers saw no benefit in terms of lower prices at the cash register, and in fact saw dramatic reduction in the rewards and benefits provided by their cards."
The interchange gauntlet has been thrown down as lawyers and lobbyists prepare to duke it out in a fight that could last months. With billions at stake, both sides are entrenched in a war in which, at this point, neither side is willing to succumb to the demands of the other.
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