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The Green Sheet Online Edition

March 14, 2022 • Issue 22:03:01

Interchange under attack, again

By Patti Murphy
ProScribes Inc.

As frustrating as legislative deadlocks can be, consensus building is no walk in the park either. In this industry, we need look no further than the Durbin Amendment to the 2010 Dodd-Frank Act. When U.S. congressional leadership set about plotting how to reform the financial sector following the financial crisis of 2008, lobbyists got busy pushing their clients' agendas. Among them were those working for retailers seeking laws addressing interchange.

So they came up with a way to attract public attention to the problem—inventing the term "swipe fee" to describe interchange and identifying consumers as the ones who ultimately get screwed. Then they took out full-page ads with major media outlets and set their lobbyists loose on Congress. Not to be outgunned, the banking and payments industries sent their team of seasoned lobbyists to fight federal regulation of interchange.

When the dust finally settled, there was interchange regulation. It was limited to debit card interchange, and then only for cards issued by the largest banks and credit unions. But it was a start. And one I believe emboldened retailers to continue seeking legislative remedies to their dissatisfaction.

State laws target interchange

Case in point: a new law under consideration in Idaho that would prohibit interchange on the tax portion of a credit or debit card transaction. This includes sales and use taxes, hotel and motel room sales taxes, fuel taxes, and cigarette and tobacco product taxes, according to reporting by an analysis of the bill posted by the Idaho Freedom Foundation.

Card processors would be required to either "deduct the amount of any tax imposed from the calculation of interchange fees specific to each form of electronic payment transaction at the time or settlement" or they would have to rebate an amount equal to the interchange on the tax amount. The legislation doesn't make clear who receives the rebates. I presume it's merchants.

This is no one-off situation. In 2021, lawmakers in Virginia shot down a similar bill. This year, in addition to Idaho, similar legislation is pending in Tennessee and Wisconsin.

Can you imagine the programming time and expense it would take to comply with such initiatives should they become law in any one, or a few states? And who will foot the bills?

Sure, processors would have the initial headaches and costs, but in the end, those costs will be passed along, to card-accepting businesses, and ultimately their customers.

Cash discounting as counterattack?

Oh, and just in case you thought merchants have shifted the focus of the interchange debate from Congress to the states, think again. The Merchants Payments Coalition, the group that brought us the phrase "swipe fees," launched on Feb. 28, 2022, a new ad campaign "to educate Congress and other policymakers" about what it describes as "the broken card market."

The six-figure ad campaign will air in the run-up to April when both Visa and Mastercard are scheduled to implement revised interchange rates, which will include rate increases. The two companies delayed planned increases in both 2020 and 2021.

The MPC said it will run ads in social media and traditional media in and around Washington, D.C., targeting lawmakers, their staffs, as well as policymakers at the Federal Reserve, the Consumer Financial Protection Bureau and the Department of Justice.

"Large U.S. credit card companies and banks take hard-earned money out of consumers' pockets every day. What's worse, they want more," reads one ad. "While the country is still on the road to recovery, credit card companies and banks are still raising fees that already cost businesses and consumers billions," states another.

Never mind that the last time Congress capped interchange, under Durbin, the prime beneficiaries were retailers. They didn't reduce prices due to lower interchange, and about one in five raised prices, according to research.

If businesses want a break on the cost of card acceptance, there's a better way than government intervention: implement cash discounting. From what I've learned from agents in the field, there's a groundswell of merchant interest in cash discounting, albeit with small and midsize businesses. Were a few larger merchants to follow, it could be a game changer. end of article

Patti Murphy is senior editor at The Green Sheet and self-described payments maven of the fourth estate. Follow her on Twitter @GS_PayMaven

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