House Interchange Bill Brings Out the Venom on Both Sides

Rested after their recent skirmish over 7-Eleven Inc.'s anti-interchange petitions, the interchange partisans went at it again Thursday in Congress. The battleground this time was a House Financial Services Committee hearing on the bill from U.S. Rep. Peter Welch, D-Vt., that would require more interchange disclosures and demolish most of the bank card networks' rules that prevent merchants from discriminating against card-paying customers. The hearing featured some interesting testimony by both defenders and opponents of the U.S. interchange system, but it was largely predictable. Retail interests argued in favor of H.R. 2382 while banking interests argued against. In fact, the Electronic Payments Coalition, a lobbying group of card networks and banks, didn't wait for the hearing and instead issued an acidic press release late Wednesday that cast merchants supporting the bill as anti-consumer. Welch's bill, the EPC said, “is one of the most egregious assaults on consumer protection that this country has seen in some time.” The group said the bill would open the door to “bait-and-switch” advertising schemes that would allow merchants to promise a low price, but customers?card-using customers, that is?might reach the checkout counter and find they have to pay more. Among other things, Welch's bill would clear the way for merchants to more easily surcharge for card transactions and ban higher interchange on rewards cards. Cards that give air miles, points, or other perks are a particular sore point for many merchants because issuers are pumping out ever more rewards cards. Visa Inc. and MasterCard Inc. have encouraged the process by increasing interchange rates on such cards in recent years. The networks set interchange pricing, which is charged to the merchant acquirer and paid to the issuer of the card a consumer uses in a transaction. Acquirers typically pass the full cost on to their merchant clients. Welch said at the start of the hearing “that it is reasonable” for merchants to pay interchange because of the value card payments bring to their businesses. But he said total interchange payments have risen from $16 billion in 2001 to $48 billion in 2008, and just a few issuers get most of the benefits. “Eighty percent of that money goes to 10 banks,” he said. The alleged market power of big, card-issuing banks was a major theme of the hearing. On the other side of the interchange coin, some large retailers in recent months have disclosed their card-acceptance expenses, interchange being the biggest component, in order to put pressure on the card networks and issuers. No. 1 retailer Wal-Mart Stores Inc., for instance, says it pays more than $1 billion annually in acceptance costs (Digital Transactions News, May 14). Small merchants pay up too, according to some witnesses at Thursday's hearing. “It's a huge burden to us,” said Kathy Miller, a board member of the Vermont Grocers Association who operates a small, family grocery store in Elmore, Vt. She said she and her husband haven't gone on a vacation in 10 years, but rewards card transactions in her store help fund her customers' getaways. But to Ann D. Duplessis, senior vice president at Liberty Bank and Trust, a small, African-American-owned bank in New Orleans that both issues cards and is a merchant acquirer, the interchange system benefits both consumers and merchants. The anti-interchange campaign contains “misleading rhetoric by large merchants that stand to benefit from Congressional action,” said Duplessis, who is also a Louisiana state senator and testified for the Independent Community Bankers of America. Indeed, small, sympathetic local businesses, banks, and credit unions often have been the front-line warriors in interchange hearings. But no card network, big card issuer, or large merchant testified at Thursday's hearing. The lack of an appearance by any of those with the largest direct stakes in interchange didn't go unnoticed by U.S. Rep. Jeb Hensarling, R-Texas. “It's not easy to discern who's David and Goliath here,” he said. Visa issued a press release Thursday morning saying its average interchange rate is 1.62% of the sale, and hasn't changed for a decade. “Unfortunately H.R. 2382 is nothing more than a renewed effort by lobbyists representing some national retailers and trade associations to shift the normal cost of business onto consumers, while retailers continue to reap the benefits electronic payments offer and pad their profits,” Visa's statement said. The Financial Services Committee paired the Welch bill hearing with a hearing on a Democrat-backed proposal to speed up the effectives dates of provisions in the credit card reform bill that President Obama signed last spring. A spokesperson for the National Retail Federation said he did not expect the panel to mark up Welch's bill today. Once it is marked up, the bill would go to the House floor for further consideration. At least two other interchange bills also are pending in Congress. Convenience-store giant 7-Eleven last week presented petitions with nearly 1.7 million customer signatures asking Congress to regulate interchange (Digital Transactions News, Sept. 30).