Sen. Richard Durbin (IL), the second ranking Democrat, introduced the measure, titled the Credit Card Fair Fee Act of 2008 (S. 3086). The legislation is a companion measure to a U.S. House of Representatives bill with the same name (H.R. 5546). House Judiciary Committee Chairman John Conyers and Rep. Chris Cannon (R-UT) introduced this measure; all together, 37 representatives have signed on to it, including 20 Democrats and 17 Republicans.
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 gives retailers a seat at the table to negotiate fair and reasonable transaction fees with credit card companies,” said John J. Motley, III, FMI senior vice present of government and public affairs. “It would put an end to the anti-competitive and anti-consumer system in which the credit card company networks fix these fees in secret with impunity.
“Americans pay among the highest fees in the developed world, while competition, economies of scale and decreasing computer and communications costs should make our fees the lowest. The absence of competition in a market controlled by two credit card networks has fostered a system that violates the fundamental principles of free enterprise.”
Credit card companies 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.
The cost of interchange fees has tripled since the beginning of this decade, from $16.6 billion in 2001 to a projected $48.8 billion this year, according to the Merchants Payments Coalition and data from The Nilson Report.
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 fees for debit and credit card transactions. The committee would negotiate which costs the fees should cover, such as computer processing, communications and system maintenance, and which would also provide financial institutions a reasonable rate of return. If the negotiators cannot reach an agreement, the decision moves to binding arbitration.
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.