Dead in ’08, Back in ’09: Congress Reintroduces an Interchange Bill

The Credit Card Fair Fee Act, a bill that would inject government into the interchange-setting process, has been resurrected after dying in committee last year. But this time there are more players around the table seemingly less inclined to sympathize with the defenders of the current bank card interchange system. H.R. 2695, introduced Thursday, has the same chief sponsor as the Credit Card Fair Fee Act of 2008, U.S. Rep. John Conyers Jr., the Democrat who chairs the House Judiciary Committee. (Conyers has a Republican co-sponsor, U.S. Rep. Bill Shuster of Pennsylvania.) And many other things are similar between the old and new bills. Most importantly, the new one would grant limited antitrust immunity to interchange rates negotiated between merchants and Visa Inc. and MasterCard Inc., the only two networks big enough under the bill's definitions to be covered by its provisions. The partisans are lining up along the same lines as last year, too?retailers in favor, banks and card networks against. The card networks set interchange rates, which are assessed to the merchant acquirer with each transaction and paid to the issuer of the card. Acquirers pass the cost on to their merchants. The National Retail Federation and the National Association of Convenience Stores quickly issued press releases supporting the bill, claiming their members and ultimately consumers are the ones who pay $48 billion a year in interchange. MasterCard, meanwhile, said in a statement that, “by exempting merchants from antitrust laws, the proposal would take away the fundamental protections that these laws provide consumers. This would result in less credit availability, along with higher prices and reduced benefits when Americans choose to use their credit or debit cards. Antitrust laws are designed to protect competition and consumers, but this bill would have the opposite effect.” And the Electronic Payments Coalition, a lobbying group of payment networks and banks, piped in that, “this legislation is an attempt by giant retailers to make consumers pay for one of their business expenses?the cost of accepting credit and debit.” Conyers said in his remarks introducing the bill that, “the average U.S. family paid an estimated $427 in interchange fees in 2008, nearly triple the amount in 2001.” He added “merchants are forced to deal within this system because it is simply not an option to refuse to accept Visa or MasterCard from their customers. They are presented with take-it-or-leave-it options and are not part of the process by which the fees are set.” Conyers left out one of the most controversial provisions of the Credit Card Fair Fee Act of 2008's first draft: establishment of a three-judge panel to arbitrate merchant and network rate disputes. That provision didn't even survive in committee last year. The new bill would have a representative of the U.S. Department of Justice attend interchange negotiations. “It is not an attempt at regulating the industry and does not mandate any particular outcome,” Conyers said. “This legislation simply enhances competition by allowing merchants to negotiate with the dominant banks for the terms and rates of the fees.” What's really different this year is that Democrats, ostensibly more sympathetic to consumer issues than Republicans, increased their margins in both the House and Senate in last November's elections. Less than three weeks ago, Congress passed a sweeping bill to regulate controversial credit card issuer practices, a bill President Obama quickly signed. The law orders to the Government Accountability Office to study and issue a report about interchange in six months (Digital Transactions News, May 20). C. Marc Abbey, a partner at Linthicum, Md.-based First Annapolis Consulting Inc. who works with merchant acquirers, took a pass on political prognostication other than to acknowledge that “it's a different legislative environment” this year. But he says the Conyers/Shuster bill could harm issuers' revenue streams enough to reduce the supply of consumer credit. “What the legislators should be asking is what is in the public interest? Tightening credit right now, I would argue that is not the right thing,” he tells Digital Transactions News. Another consultant and former First Data Corp. and Visa executive, Allen Weinberg of Menlo Park, Calif.-based Glenbrook Partners LLC, also declined to comment about the new bill's political prospects. “Having said that, there's so much money at stake that it's going to be a hard-fought battle that won't go away irrespective of what happens to the [bill],” he says by e-mail. The Conyers/Shuster bill doesn't yet have a Senate companion. A spokesperson for U.S. Sen. Richard Durbin, D-Ill., who sponsored a Senate version of the Credit Card Fair Fee Act last year, could not be reached for comment.