FTC, DoJ Are Leery of Bills That Would Regulate Interchange Rates

Congress may be taking the week off for its annual Fourth of July recess, but the interchange fireworks are sure to resume after lawmakers return next week. Banks and the payment card networks, which oppose the Credit Card Fair Fee Act of 2008 in the House of Representatives and its Senate companion, recently got some ammunition for their cause when both the U.S. Department of Justice and the Federal Trade Commission came out against the interchange proposal. The agencies issued their opinions in separate letters to U.S. Rep. Lamar Smith, R-Texas, ranking member of the House Judiciary Committee, who solicited their views. Meanwhile, the House Judiciary Committee could vote on the House measure, H.R. 5546, sometime in July, according to a spokesperson for the National Retail Federation, a strong supporter of the bill that would give limited antitrust immunity to interchange rates voluntarily reached by merchants and the bank card networks. In the absence of such agreements, a new federal panel of interchange judges would be empowered to arbitrate rates. Both the DoJ and the FTC, which enforce federal business-competition laws, questioned the wisdom of giving an antitrust pass to future interchange agreements to counteract the perceived market power of the current system. “Such a result may well increase, not decrease, any existing harm to competition and consumers,” says the DoJ letter signed by Keith B. Nelson, principal deputy assistant attorney general. “Indeed, the joint negotiations among merchants exempted by the bill appear to be the type of naked collusion that the antitrust laws condemn as per se unlawful because such conduct lacks plausible benefits to competition.” Nelson questions the ability of the bill's payment-system judges, a panel of three that would be appointed by the FTC and the DoJ's antitrust division, “to replicate the terms that would be reached in a competitive market. Moreover, a panel of regulators cannot replicate the flexibility that is found in the free market. This bill imposes inflexibility into the terms and fees by requiring all terms to apply across all merchants and issuers that do not reach an agreement and by setting the same fee and terms for a period of two or three years.” The FTC's letter, which is signed by Chairman William E. Kovacic, is less detailed than the DoJ's, but says, “As a general matter, the commission has long disfavored exemptions from the antitrust laws.” And like the DoJ, the FTC says it does not relish the administrative tasks the bill would impose on it. The spokesperson for the NRF, a Washington, D.C.-based trade group, tells Digital Transactions News the FTC's position “is sort of what you'd expect, since they enforce antitrust.” And he criticizes a section of the DoJ's letter discussing the possible effects on cardholders?higher annual fees being one?if merchants' card-acceptance costs are lowered. This amounts to letting the injustices of the current system continue in order to avoid a potential negative outcome elsewhere, he charges. Today, Visa and MasterCard set the interchange rates applicable to each transaction, which merchant acquirers pay to card issuers but pass on to their merchant clients. Merchants don't have any direct input into the interchange-setting process. A spokesperson for House Judiciary Committee Chairman John Conyers Jr., the Michigan Democrat who introduced the interchange measure, could not be reached for comment about what Conyers thinks about the letters. The Electronic Payments Coalition, a trade group of banks, payment networks, and processors issued a press release publicizing the letters.