There’s No Bill, But the Interchange War Heats up in D.C. All the Same

An interchange battle is raging this week in Washington D.C., even though there is no interchange bill pending in Congress. Some merchants, however, hope that will change soon and are pushing their agenda with an advertising campaign that includes a YouTube video and advertising designed to influence new members of Congress. Payments-industry groups are trying to thwart what they see as unwarranted government intervention. The sources of the skirmishing are two bills pending in the Senate and House of Representatives that would regulate credit card terms on the cardholder side. The bills would ban such issuer practices as universal default and the two-cycle system for calculating finance charges, and require issuers to improve disclosures. The Senate version, S 414, was marked up Tuesday morning on a 12-11 vote in the Banking, Housing and Urban Affairs Committee, according to Congressional Quarterly's CQ Politics online news site. Its chief sponsor is panel chairman U.S. Sen. Christopher Dodd, D-Conn. A similar bill awaits markup in the House on Wednesday. The bills essentially would speed up the effective date of regulations already planned by the Federal Reserve. Neither bill addresses interchange, but a prominent merchant group, the Merchants Payments Coalition, sees them as a way to get some form of interchange regulation onto the table. That could happen if a senator or House member sympathetic to the merchants' views tries to revive the controversial Credit Card Fair Fee Act or a second interchange-regulation bill that failed last year in Congress, notes payments consultant Eric Grover, principal of Intrepid Ventures in Menlo Park, Calif. “They want to get an amendment in there,” he says. Today, Visa Inc. and MasterCard Inc. dictate interchange rates, which are charged to the acquirer. The acquirer pays interchange to the issuer of the card used in a transaction, but typically passes the full cost on to the merchant. The Credit Card Fair Fee Act would have given limited anti-trust protection to interchange rates negotiated by merchants and the card networks. The bill also would have established a federal arbitration system if the two sides couldn't reach agreement (Digital Transactions News, March 10, 2008). The Merchants Payments Coalition, which is headed by the National Retail Federation trade group, has posted an anti-interchange commercial on Google Inc.'s YouTube video Web site and is running a “six-figure” television and radio advertising campaign in the districts of several junior members of the House Financial Services Committee, according to a story posted today on The Caucus, a New York Times political blog. The MPC held a news conference Monday about the campaign, whose goal is to get people to urge their representatives to take up the cause of interchange relief. “We're still pushing the interchange legislation as a stand-alone bill, but have also pushed the idea of attaching it to the Credit Card Bill of Rights since that's a vehicle that's moving and Congress is in the frame of mind to regulate the credit card industry,” an NRF spokesperson tells Digital Transactions News by e-mail. Grover interprets the targeting of newer panel members as an appeal to lawmakers who don't have hardened positions from last year's heated interchange debate. Alarmed about the renewed possibility of interchange regulation, the Electronic Transactions Association, the Washington-based trade group of merchant acquirers, sent a blast e-mail to its members Monday night urging them to tell their representatives to oppose new controls. While acquirers don't like interchange because their merchant clients complain about the cost, they dislike the idea of government stepping into the fray even less. “As you know, ETA is strongly opposed to any attempt to create government regulation or to legislate rate-setting methods for the interchange system,” the e-mail says. The e-mail has a link to the Web site of the Electronic Payments Coalition, a group that includes the card networks and big banks, whose card-issuing divisions receive millions of dollars in interchange revenue annually. An ETA spokesperson did not return a call from Digital Transactions News. It remains unclear whether interchange regulation will become law or even whether the bills targeting only issuers will make much headway, despite the Democrats now controlling both houses of Congress and the White House. Republicans aren't on board. Consultant Grover, a former Visa executive, also notes that many Democratic lawmakers normally sympathetic to the merchants' pleas for interchange relief are likely to conclude that the odds for passing the current bills would be better if the proposals excluded interchange. Then again, some in Congress might try for a home run because the usually powerful banking lobby has been battered by the financial crisis. “'The banks are on ropes, let's go for it now, the banks are weak,'” is how Grover summarizes that line of thinking.