Wednesday , November 27, 2024

Durbin Adds Senate Bill to House Effort to Rein in Interchange

The other shoe dropped on bank card interchange Thursday afternoon when U.S. Sen. Dick Durbin, D-Ill., introduced a companion bill to the Credit Card Fair Fee Act of 2008 pending in the House of Representatives' Judiciary Committee. Durbin's bill, including its name, is nearly identical to the House version introduced by U.S. Rep. John Conyers, D-Mich. That bill would give limited antitrust protection to card-acceptance rates merchants and Visa Inc. and MasterCard Inc. reach on their own accord. If the two sides couldn't agree, a three-judge panel appointed by the U.S. Department of Justice and the Federal Trade Commission would impose arbitrated rates. “There is no meaningful competition or negotiation involved in the setting of interchange fees,” a release announcing Durbin's bill says. The move by Durbin, the Senate Democratic whip, is no surprise as he had declared his intentions last month to investigate interchange. Durbin and three other senators?a Democrat and two Republicans?followed up by asking Visa and MasterCard for detailed information by June 3 about how they set interchange rates (Digital Transactions News, May 30). The networks responded, a Durbin spokesperson tells Digital Transactions News. But while the materials they submitted were voluminous, an initial review didn't find all the senators wanted, according to the spokesperson. Durbin noted that in his release. “Unfortunately, in their response the card companies again failed to adequately explain how they decide what interchange rates to charge,” the release says. The spokesperson adds that Senate staff members are still sorting through the materials. A MasterCard statement indicates the network thought its reply was sufficient. MasterCard said it is “surprised” that Durbin introduced his bill “only a day after we provided a detailed response to his request for information on how U.S interchange rates are established.” Citing reports that merchants in Australia, where the central bank has capped interchange, haven't passed on the savings to consumers, MasterCard's statement says, “MasterCard believes there is no need for government intervention … such policy decisions in the past have proven to be unworkable, unpopular, and detrimental to the free-market economy.” Visa issued a similar statement saying, “The proposed bill is an attempt by large retail associations to transfer retailers' cost of doing business onto the backs of consumers. In other parts of the world, such as Australia, where similar regulatory intervention has been tried, the results were predictable. Consumers were harmed through less choice, higher prices, and fewer rewards and benefits.” Visa also says the Senate bill would hurt the competitiveness of smaller financial institutions. Retailers, however, strongly endorsed the House bill and on Thursday the Washington, D.C.-based National Retail Federation said it welcomes Durbin's bill. Retailers ultimately pay interchange fees–which are set by the networks and go to card issuers?and claim they need relief from the steady rise in interchange costs. They argue these costs pay for issuers' rewards programs rather than just operational and loss expenses, to which merchants believe interchange should be confined. “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,” NRF senior vice president and general counsel Mallory Duncan said in a statement. He added “negotiation is important because these fees are set behind closed doors and imposed on a take it or leave it basis. This bill would give retailers the opportunity to negotiate terms on behalf of themselves and their customers that reflect the actual cost of the services provided rather than credit card companies' attempt to reap windfall profits from soaring prices.” Speaking to Digital Transactions News, Duncan said of Durbin's bill: “This is a very positive development. It gets the discussion going in both houses of Congress.” Whether interchange controls will actually become law is far from certain. One industry lobbyist, attorney David P. Goch, who represents the Electronic Transactions Association merchant-acquirer trade group, pronounced the House bill “d.o.a.” while speaking at the ETA's annual conference in Las Vegas (Digital Transactions News, April 17). At that time he said the proposal would disrupt case law and statutory precedents governing contracts. Durbin's bill has the same flaws as that of Conyers, granting antitrust immunity on the one hand while on the other hand allowing federal judges to arbitrate pricing if the parties can't agree, according to Goch. He also notes that the bills single out Visa and MasterCard but leave the other card networks alone. “I am still in the camp that the legislation is a long shot this year,” says Goch, a partner in the Washington office of Webster, Chamberlain & Bean LLC. “It doesn't ring right.” However, Eric Grover, a former Visa executive and principal with Menlo Park, Calif.-based consulting firm Intrepid Ventures, argues the Durbin bill could hike the chances of some form of regulation of interchange. “This increases the likelihood we are going to see the card industry converted into a public utility,” he says. Durbin's spokesperson says the bill doesn't have a number yet, nor has it been assigned to a committee. He expects it probably will be assigned to the Senate Judiciary Committee.

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