The bipartisan team of House Judiciary Committee Chairman John Conyers (D-MI) and Rep. Chris Cannon (R-UT) introduced the measure, titled the Credit Card Fair Fee Act of 2008 (H.R. 5546). It is co-sponsored by eight Republicans and four Democrats: Reps. John Boozman (R-AR), Louie Gohmert (R-TX), Ralph Hall (R-TX), John Peterson (R-PA), Todd Platts (R-PA), Bill Shuster (R-PA), John Sullivan (R-OK), Joe Wilson (R-SC), William Delahunt (D-MA), Zoe Lofgren (D-CA), Anthony Weiner (D-NY) and Peter Welch (D-VT).
The legislation applies to electronic payment systems that account for at least 20 percent of the annual credit and debit card dollar volume. Only the Visa and MasterCard systems currently hold this market share.
“This law would restore fairness and reason to an anti-competitive, anti-consumer and broken electronic payments system,” said FMI President and CEO Tim Hammonds.
“For far too long, the card companies and banks have set these fees in secret with impunity — particularly interchange fees, which make up about 80 percent of the cost.
“Americans pay among the highest fees in the developed world, while competition, economies of scale and plummeting computer and communications costs should make our fees the lowest.”
All credit and debit card transaction fees exceed $45 billion a year, more than six times the actual cost of service plus a reasonable profit, according to the legislation. The card companies and banks extract these fees from every single plastic transaction, averaging more than 2 percent.
In the end, all consumers pay for these fees — whether they pay by plastic, cash or check — because card company rules effectively force retailers to build them into the price of all goods and services.
How the Legislation Would Ensure Fees Are Reasonable
The legislation would require a committee of merchants and representatives of card companies and banks to negotiate uniform fees for debit and credit card transactions. The negotiators would decide which costs the fees should cover, such as computer processing, communications and system maintenance, and provide financial institutions a reasonable rate of return. If the negotiators cannot reach an agreement, the decision moves to binding arbitration by a panel of experts.
The fees would remain in effect for three-year periods. They could be renegotiated at the end of each period if costs and market conditions change.
This proposal is modeled after a system used in the music industry to determine compensation for the performance of copyrighted songs.
The introduction of this legislation follows three congressional hearings on interchange fee issues, including one on July 19, 2007, by the House Judiciary Committee Antitrust Task Force and two in 2006 by the full Senate Judiciary Committee on July 19 and by the House Commerce Subcommittee on Commerce, Trade and Consumer Protection on February 15. The U.S. Justice Department revealed at the 2007 hearing that it is investigating interchange fee antitrust issues.
Transaction Fees Found Excessive, Anti-Competitive Worldwide
Almost every other developed economy in the world has investigated credit card transaction fees, particularly interchange, and found them excessive and anti-competitive. In December, the European Commission ruled that interchange fees violate EU competition laws at 0.6 percent, a fraction of what Americans pay.
In the U.S., total interchange costs alone increased from $16.6 billion in 2001 to $36.3 billion in 2006, according to analyses by The Nilson Report and the Merchants Payments Coalition. At the current rate of increase, these fees will cost more than $40 billion in 2007 and near the $50 billion mark this year.
Card companies and banks charge myriad other fees on each transaction, including dues and assessments, base rate settlement fees, surcharges, access fees, risk fees and PIN-debit switch and transaction charges — all of which have been increasing as well with no clear justification.
It is well documented that current U.S. interchange rates far exceed actual transaction costs. Only 13 percent of the fee covers the cost to process a transaction, according to the bank industry research firm Diamond Management & Technology Consultants (A New Business for Card Payments, 2006). As much as 44 percent pays for credit card rewards programs. The fees also help pay for marketing programs, including more than five billion direct mail solicitations per year, according to Synovate, a card industry research firm.
FMI is a leading member of the Merchants Payments Coalition, a group of nearly 100 associations representing retailers, supermarkets, drug stores, convenience stores, fuel stations, online merchants and other businesses that accept debit and credit cards. The MPC is fighting for a more competitive and transparent card system in which interchange fees are based on actual transaction costs. The coalition’s member associations collectively represent about 2.7 million stores with about 50 million employees.