Partisans Square off Again As the Interchange War Moves to the Senate

The simmering battle over card interchange, which up to now has been fought mostly in the courts, found a new battlefield in the U.S. Senate Wednesday as opponents and supporters of the controversial fee testified before that body's Judiciary Committee. The occasion was a hearing dubbed, “Credit Card Interchange Rates: Antitrust Concerns?” No interchange-regulation bill is pending in the Senate, and Wednesday's hearing settled no questions related to interchange, but it once again forced proponents to explain the pricing mechanism's often mysterious workings. U.S. retailers are challenging Visa and MasterCard interchange in federal court in Brooklyn, N.Y., through a class action that consolidated about 50 separate lawsuits (Digital Transactions News, May 23). A House of Representatives panel held a one-day hearing on interchange in February (Digital Transactions News, Feb. 15). At issue is the amount of a Visa/MasterCard transaction that the merchant acquirer, and ultimately the merchant, pays to the issuer of the card the customer uses for purchases. Merchants allege interchange rates, which Visa and MasterCard set based on card type, merchant category and transaction volume, are too high and not subject to market forces. Kathy Miller, owner and operator of The Elmore Store, a store in Elmore, Vt., with two gas pumps, said her store did $58,500 in business on credit and debit cards last year. The store's out-of-pocket credit card fees were $4,400. A credit card transaction costs the store 2.65% of the sale plus 20 cents. “You do the math?it hurts,” she said in her prepared remarks. Miller concluded by saying that “interchange fees in this country reflect a market in which the normal, competitive forces are not working. This flawed market results in interchange fees that are not cost-related, and which are intentionally kept hidden from consumers.” The National Retail Federation trade group expressed similar sentiments. “The call to investigate these fees is growing louder every day,” Mallory Duncan, the Washington-based NRF's senior vice president and general counsel, said in a release issued this morning. Backers of the current system include the Electronic Payments Coalition, a new group supported by payment networks and banks. “Unfortunately, certain trade associations want Congress to intervene in the efficient and market-based electronic payments network,” the EPC said in a release. “They want the government to impose price controls and shift their cost of doing business onto consumers. Government intervention would lead to higher fees for cardholders, fewer rewards programs, and less choice.” Joshua L. Peirez, MasterCard Worldwide's group executive, global public policy and associate general counsel, noted that The Reserve Bank of Australia, that country's central bank, now regulates bank card interchange. “The net effect of the RBA's arbitrary price caps has been that consumers have seen annual fees and finance charges increase while consumer benefits have decreased,” Peirez said in written remarks. “There is also no evidence that merchants have lowered prices to consumers as a result of their paying lower fees for card acceptance.”