Congress Breaks Its Silence on Interchange with a New Hearing

After months of inactivity on interchange regulation, the U.S. House of Representatives judiciary committee on Wednesday held a hearing on one bill advocated by national merchant groups. And while the committee took no action, one merchant group views the hearing as a hopeful sign that legislation will be passed. The committee heard testimony from proponents and opponents of the Credit Card Fair Fee Act of 2009, H.R. 2695, whose lead sponsor is House Judiciary Committee Chairman U.S. Rep. John Conyers, D-Mich. Two other interchange-regulation bills are now pending before Congress?the Credit Card Interchange Fees Act of 2009, sponsored by U.S. Rep. Peter Welch, D-Vt., also in the House, and the Credit Card Fair Fee Act, S. 1212, sponsored by U.S. Sen. Richard Durbin, D-Ill., in the Senate. The fact that Conyers scheduled a hearing during a very busy Congressional session “is probably significant and shows he wants to get something accomplished,” says Craig Shearman, vice president of public relations for the National Retail Federation. The NRF is part of a merchant coalition seeking legislation that would allow merchants to negotiate interchange fees. “The congressional schedule is so busy during an election year when they're going to be ending the year early that a chairman doesn't generally hold one unless he or she has an intention of doing something,” he says. However, a spokesperson for the Electronics Payments Coalition, a pro-interchange lobbying group of payment card networks and banks, says there is no indication that Congress is preparing to take action on any of the interchange-regulation bills. But Shearman says the financial meltdown of the past two years also has created an environment that's “very conducive to addressing all the issues that have the public and lawmakers concerned about banking-industry practices.” One option would be for the interchange-regulation issue to be incorporated in the financial-services reform bill making its way through Congress, he says. In a statement following the hearing, Conyers said H.R. 2695 “should clearly be part” of the discussion of the debate on Wall Street reform. But a Conyers spokesperson says he doesn't know whether interchange-regulation provisions will be added to the reform bill. H.R. 2695 “would level the playing field between small merchants and big banks. It creates a 'one-shot reset,' using a temporary antitrust exemption to allow banks and card networks and retailers to all sit down and try to negotiate fair interchange rates,” Conyers said. In testimony at the hearing, the owner of a chain of convenience stores and part owner of a large community bank said that interchange fees “have long been out of control, and they are nearly suffocating my retail stores while yielding no profit at all for my community bank.” Interchange fees exceed even labor costs at some locations, Dave Carpenter, president of ShortStop Convenience Stores and co-owner of Liberty Bank Iowa, said in testimony on behalf of the National Association of Convenience Stores. “For one of my stores, the amount we pay in card fees is twice what we pay for rent, four times more than utilities, and 30 times more than health insurance,” Carpenter says. “I'm even paying card processing fees on the amount of each sale that we collect as taxes. Last year we paid more than $130,000 in swipe fees just on state and federal gasoline tax.” However, retailers reap “tremendous benefits in the form of increased sales, reduced costs for overhead, such as accounting for and transporting cash, substantially fewer fraud losses, and immediate payment for goods and services,” John Blum, vice president of operations for Chartway Federal Credit Union, said in testimony. “There is a transfer of risk from the merchant to the financial institution. The financial institution assumes the risk of non-payment and fraudulent charges while the merchant receives their payment.” Capping or placing new restrictions on interchange fees also would ultimately give large financial institutions an advantage over credit unions and other small financial services providers, Blum said. He notes that about 3,000 credit unions have less than $10 million in assets and that credit unions represent 2% of total household financial assets as of December 2009. “Given Chartway's per transaction cost, coupled with our customer base?which is smaller than that of a typical commercial bank?we will find it more difficult than larger institutions to offset the losses from a cap on interchange fees,” says Blum, who testified against the bill on behalf of the National Association of Federal Credit Unions.