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July 28, 2008 • Issue 08:07:02

HR 5546 is in the House

The U.S. House Judiciary Committee passed the Credit Card Fair Fee Act (HR 5546) on July 16, 2008, by a 19 to 16 vote. The bill now goes to the full House of Representatives for a vote at an unspecified date. A Senate bill, SB 3086, similar to the original House bill, is currently pending in the Senate Judiciary Committee.

However, HR 5546 includes one significant change: The provision establishing a three-judge panel to arbitrate interchange pricing - should merchants and the bankcard networks fail to agree on rates - was eliminated. Enforcement now falls on the U.S. Department of Justice's Antitrust Division.

Executives for Visa Inc. and MasterCard Worldwide, whose branded cards account for 80 percent of the credit card market, said the legislation would simply push more of the cost of using bankcards onto consumers.

Interchange fees, though set by the two card brand titans, are collected by the merchants' banks as part of the charge for processing transactions.

The credit card companies say they receive no revenue from the fees.

In 2007, banks made $42 billion in interchange fees. The top 10 banks issued 88 percent of the credit cards and made the vast majority of those fees, as reported in a July 15, 2008, press release by the Merchants Payments Coalition.

Everybody's got one

As the battle between the credit card industry and retailers escalates, pundits on both side are vehement in their opinions regarding the bill's passage.

Steve Pfister, Senior Vice President for Government Relations at the National Retail Federation, called the bill "a sensible solution to an escalating problem that is costing consumers more every day."

Other proponents of the bill, including Stephen Lerner, Director of the Service Employees International Union's Private Equity Project, believes the biggest banks have put working families and the economy on a rollercoaster.

He thinks lawmakers and regulators have to act before the fees and bad practices hurting consumers derail the economy altogether.

However, Josh Floum, Visa's General Counsel, said in a prepared statement that "HR 5546 remains an anti-consumer bill that would mandate unnecessary regulatory intervention into a fiercely competitive industry that is benefiting consumers, merchants and financial institutions."

Edward L. Yingling, Chief Executive Officer of the American Bankers Association, agreed with Floum. He said the bill is "simply an effort by the merchant community to have government step in and reduce their cost of doing business."

Payments industry opponents of the bill feel that since card issuers make a significant portion of their card-acceptance fees from interchange, they would suffer the greatest revenue loss, and would have to offset those losses by raising cardholder fees and eliminating reward and loyalty programs.

Fingers in the pie

In a statement, Rep. John Conyers, D-Mich., said he would "respond to many of the good faith concerns expressed by members of this committee on both sides of the aisle.

"I remain open and receptive to other suggestions that help us fine-tune the legislation, including suggestions made after today's mark-up.

"What I am not open to is simply perpetuating the status quo and seeing further competitive harm to the marketplace and consumers."

In addition to removing the judge arbitration panel, Conyers included an amendment that would require merchants to pass on any interchange savings they reach under its provisions to customers or employees.

In his statement, Conyers said the bill is not an effort to set price controls.

"Currently, the retailers are forced to enter take-it-or-leave-it contracts before they can accept Visa and MasterCard at their stores," he said. "HR 5546 simply levels the playing field and encourages negotiation."

In an excerpt from a letter dated July 15, 2008, and addressed to Congress, four of the nation's leading unions and trade associations representing merchants stated the "federal agencies responsible for protecting American consumers from the credit card industry's worst abuses have failed to use their authority to stop the anticompetitive, deceptive and unfair practices that have become standard in the industry."

While the bill has not been passed into law, this latest step may escalate the ongoing battle over interchange between the credit card industry and the merchants it serves. end of article

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