U.S. Sen. Richard Durbin, D-Ill., on June 14 announced plans for a hearing this week examining the interchange fees the federal government pays on credit and debit card transactions and how to reduce them.

The hearing will take place on June 16 before the Senate Appropriations Subcommittee on Financial Services and General Government that Durbin chairs, based on a federally mandated report the U.S. Treasury released this month on the government’s interchange-rate expenses.

The report suggests that the federal government could save $36 million to $39 annually if it were able to negotiate lower interchange rates for credit and debit card acceptance.

“Under the current system, the fees are unilaterally set by the card giants,” Durbin said in a statement. “The federal government, like small businesses around the country, is forced to accept them.”

The Treasury report suggests t the government could save $25.5 million to $28.4 million annually through a flat interchange rate on all credit card transactions. If it were able to negotiate a separate flat debit-interchange rate, the government could save $4.8 million to $5 million annually. The report did not specify the exact interchange rates it hopes to achieve.

The flat interchange rates would be apply to all types of transactions equally, whether the card is present or not and regardless of reward-program type. “For all credit transactions, Treasury would seek to negotiate a maximum rate that would be a fixed percentage of transaction dollars. For all debit transactions, Treasury would seek a maximum rate that would be the same for PIN and signature debit and would be a fixed fee per transaction,” the report said.

The Treasury Department also said if it capped individual card transactions at $9.999.99, the government could save between $5.4 million and $8.8 million annually.

According to the report, the U.S. government is among the largest public-sector merchants, supporting more than 4,350 federal-agency locations. During fiscal 2009, federal government agencies accepted more than 80 million credit and debit card transactions totaling $8.6 billion. The government paid more than $116 million in interchange and related fees on those transactions.

Debit cards accounted for more than 60% of total card transactions in fiscal 2009, while credit cards accounted for more than 60% of total purchase volume, the report said. Credit card interchange accounted for more than 85% of total interchange fees the government paid.

The interchange rates applied to government payments vary widely, and more-favorable rates are not applied consistently across different transaction types. “Moreover, payment networks frequently change rates and can unilaterally raise fees,” the report said.

The Treasury Department asserted that if it attempts to negotiate lower transaction fees, the terms must ensure fair competition among participants, “so that acquiring banks are willing to compete for the federal government’s business.”

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