Representatives of retailers and electronic payment groups testified for and against government interchange restrictions before the U.S. House Subcommittee on Commerce, Trade and Consumer Protection Feb. 15.
Henry O. Armour, president and CEO of the National Association of Convenience Stores, testified that convenience-store owners see a few basic operating rules when they sign agreements with acquiring banks to accept Visa and MasterCard products but are kept in the dark about most rules until they break them and receive chargebacks or higher interchange fees. For example, contracts merchants sign with acquirers stipulate that they are not supposed to set minimum or maximum purchase amounts for credit card use, but the full operating agreements that they are not allowed to see include maximum purchase limits for gasoline, he said.
Those hidden rules lead to chargebacks, Armour said. "The merchant can't restrict, but Visa and MasterCard reserve the right not to pay you if it's over $50 [for gasoline]," he said.
Armour believes U.S. retailers should see lower interchange rates than elsewhere because they generate the most transactions in the world and maintain one of the lowest fraud rates.
Edward Mierzwinski, consumer program director of the U.S. Public Interest Research Group, advocated more studies of merchant and cardholder rules, interchange and how interchange cost is shared by consumers. "I personally don't think that Joe Cash Customer, who can't afford a bank account, should be paying for Jane Frequent Flyer Miles," he said.
Representing the Electronic Payments Coalition, former Federal Trade Commission chairman Timothy J. Muris, now an attorney with O'Melveny & Myers LLP in Washington, called merchant claims of price fixing disingenuous. Muris also argued that individual retailers negotiate a variety of interchange fees with their acquiring banks, so prices are not really fixed.
Ranking minority member Rep. Janice Schakowsky (D-Ill.), appeared to agree with Armour and Mierzwinski that interchange fees are too high and affect consumers adversely. Others, such as Rep. Michael Ferguson (R-N.J.), expressed a general distaste for price controls. "I'm suspicious of governments telling markets how much to charge," Ferguson said.
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