How Washington’s Credit Card Fray Could Hammer Acquirers

The White House is scheduled to dress down credit card issuers this week. That and current and possible bills in Congress increase the chances of new regulations on merchant acquirers, according to a lobbyist for the Electronic Transactions Association trade group of independent sales organizations and other merchant processors. Congress and President Obama are challenging a number of credit card fees and controversial issuer practices such as universal default as anti-consumer. But, depending on how precisely controls on fees are defined and to whom they apply, bills ostensibly aimed at issuers also could be applied to acquirers, says attorney David Goch, a partner in the Washington, D.C., office of Webster, Chamberlain & Bean. “When it comes down to this, you're within their sight,” Goch said. “They [lawmakers] don't understand the intricacies of the transactions.” Goch spoke at a panel session during the ETA's 2009 Annual Meeting & Expo in Las Vegas that assessed the prospects for regulation of interchange. While acquirers grumble when the card networks raise interchange, a transaction fee assessed to them but paid to card issuers, most don't want the government to intervene in the market despite support for such intervention by a sizable number of merchants. Retailers and other card acceptors that ultimately pay the cost of interchange say the private market doesn't work in setting fair rates. Goch noted that things are busy in Washington. In the House, the so-called Credit Card Holder Bill of Rights, H.R. 627, was marked up Wednesday and is now headed to the floor for debate. Among other things, the bill from U.S. Rep. Carolyn B. Maloney, D-N.Y., would move up the effective date of planned Federal Reserve controls on issuers from well into 2010 to 90 days after the president signs it. Her bill failed last year, but attracted considerable Republican support. In the Senate, meanwhile, Christopher Dodd, D-Conn., head of the Senate Banking Committee, has introduced a similar bill, S414. Dodd's bill also calls for a Government Accountability Office study of certain practices–and Goch noted that GAO studies frequently spur legislation. Dodd also has political troubles that could give him good reason to back pro-consumer bills, Goch added. Another bill, S566, would establish a “safety commission” to assess the soundness of financial products in much the same way that the federal Consumer Product Safety Commission assesses physical products. While the intent is to rein in consumer-oriented products that have contributed to the financial crisis, the bill's wording could be construed to include interchange, according to Goch. Yet another bill would allow bankruptcy judges to dismiss high-interest-rate credit card debts. In what will surely put lots of heat on the issuing side, Obama and his economic team are calling in 14 senior bank and card-industry executives on Thursday to explain why they do what they do. Goch said Obama's reference point would be Maloney's bill. “He wants to see what the industry will give,” Goch said. And there's always the possibility that a highly controversial bill that failed last year, the Credit Card Fair Fee Act, could be revived in the new Congress. That bill would have given some anti-trust protection to interchange rates negotiated by the networks and merchants, and set up a federal arbitration process if they couldn't agree. That the card industry is on the defensive is testimony not just to consumer activists and Democrats controlling the White House and both houses of Congress, but also to anti-interchange retailer groups such as the Merchants Payments Coalition that have communicated their message well, according to Goch. “They've succeeded in getting Congress's attention,” Goch said. “A consumer appeal is a good appeal.” Asked by an attendee to predict whether Congress will actually approve some sort of regulation on merchant pricing, Goch said chances are better than in recent years. “I do believe it is a different world,” he said. “A number of strong forces have coalesced.”