Legislation that would cut credit card interchange rates has gathered enough support in Congress to prompt the introduction this year of companion interchange-regulation bills in both the U.S. House and Senate.
Under the Credit Card Fair Fee Act, card issuers would be required to negotiate interchange rates with retailers. If they could not reach an agreement, a three-judge panel appointed by the government would determine the rates through binding arbitration.
The National Retail Federation says a law to reduce interchange is long overdue. The average U.S. family will pay $427 in hidden interchange fees this year, according to the federation, based on its estimates that Visa Inc. and MasterCard Worldwide issuing banks in the U.S. will collect $48 billion in interchange in 2008.
Visa and MasterCard set their cards' interchange rates. Merchant acquirers pay issuers interchange and pass the expenses on to their retailer customers, which include the costs in prices for the products and services they sell.
"The introduction of this bill shows momentum is building in Congress and that both the House and Senate are ready to bring the credit card companies' greed under control," Mallory Duncan, the federation's senior vice president and general counsel, said in a statement.
Most issuers, major card networks and the American Bankers Association, however, oppose any government involvement in interchange.
William M. Sheedy, Visa global head of corporate strategy and business development and a member of Visa's management team, says regulating interchange would hurt competition. He contends the new law has little chance of passing because it excludes American Express Co. The bill applies only to electronic payment networks with at least 20% share of U.S. payments, which excludes AmEx and Discover Financial Services.
"This legislation is about price controls, which never work," Sheedy tells Cards&Payments.
Sheedy says the fact that AmEx is excluded from the legislation, apparently because of its relatively small market share, is a glaring indication of the bill's flaws. "We welcome competition, and we are open to discussions with retailers. ... But in our opinion this legislation is ill-conceived and has no chance of passing," he says.
Adding to the pressure is another interchange-related bill introduced last month by Rep. Peter Welch, D-Vt., in the U.S. House. The Credit Card Interchange Fees Act would abolish the card brands' "honor-all-cards" rules, enabling merchants to steer consumers away from rewards-based credit and debit cards that are associated with higher interchange fees. The bill would also enable merchants to offer customers a discount for paying in cash.
"Interchange is the core of the credit card business, and changing how it is calculated could have far-reaching effects," says Adam Levitin, associate professor of law at Georgetown University and an expert on financial-services regulation and competition.
Levitin predicts that within five to 10 years "we will see a change in interchange rates." CP