House Committee Passes Interchange Bill, But Scraps Panel of Judges

The U.S. House Judiciary Committee passed the controversial Credit Card Fair Fee Act of 2008 on Wednesday on a 19-16 vote, but with a significant change. The marked-up bill no longer includes a provision that would have established a three-judge panel to arbitrate interchange pricing should merchants and the bank card networks fail to agree on rates. Instead, the bill now assigns enforcement to the U.S. Department of Justice's Antitrust Division. The bill, H.R. 5546, now goes to the House floor for a vote at an unspecified date. A Senate bill similar to the original House bill, S. 3086, is pending in the Senate Judiciary Committee. The main sponsor of the House bill, Judiciary Committee Chairman John Conyers, D-Mich., scrapped the judicial panel in the wake one of 2008's more notable lobbying campaigns that featured a wave of in-person visits, letters, and testimony from retailers, which as the payers of interchange generally support the bill, and banks, payment networks, and other groups opposed to it. Yesterday, five House Democrats sent Conyers a letter suggesting that the bill hadn't addressed whether consumers are best served by the status quo, according to the National Journal's CongressDaily news service. Visa and MasterCard set per-transaction interchange rates, which merchant acquirers pay to card issuers. Acquirers typically pass the expense on to their merchant clients. In a statement today, Conyers said he would respond to “many of the good-faith concerns expressed by the members of this committee on both sides of the aisle. I remain open and receptive to other suggestions that help us fine-tune the legislation, including suggestions made after today's mark-up. What I am not open to is simply perpetuating the status quo, and seeing further competitive harm to the marketplace and consumers.” Conyers made other changes in addition to removing the judicial panel. His amendment would require merchants to pass on any interchange savings they reach under its provisions to customers or employees. Conversely, should a card issuer get an interchange increase, the amended language says “the financial institution shall pass the benefits of any such increase in fees on to its customers or employees.” And credit unions with less than $1 billion in assets could opt out of negotiations under the bill's auspices, though how that would work wasn't immediately clear. The National Retail Federation, a prominent Washington, D.C.-based trade group and ardent backer of the bill since the beginning, expressed some disappointment that the judicial panel was removed but still supports the amended bill. “We would have preferred to have had the three-judge panel, but there are plenty of laws on the books that don't have a specific enforcement mechanism but they're still the law of the land and the Justice Department still could come in and enforce the law,” a spokesperson tells Digital Transactions News. “Regardless of the details and the changes that were made today, this is still a landmark bill and it shows Congress plans to crack down on the greed of the credit card companies.” Visa Inc. general counsel Josh Floum issued a statement criticizing the amended bill?and the NRF. “The mark-up of H.R. 5546 only raises more questions and concerns about an already bad bill,” he said. “H.R. 5546 remains an anti-consumer bill that would mandate unnecessary regulatory intervention into a fiercely competitive industry that is benefiting consumers, merchants, and financial institutions.” Floum's statement later said, “The retail federation wants all of the benefits of the payments system?guaranteed payment, convenience, risk management, reliability, and increased sales volume?but wants to shift their cost of doing business onto the backs of consumers.” Floum said Australia tried a similar regulatory approach, yet retailers pocketed the savings. A MasterCard spokesperson could not be reached for comment after today's vote. However, the network late Tuesday issued a press release imploring the Judiciary Committee to consider the views of the bill's many opponents, including the National Black Chamber of Commerce. MasterCard also noted that one major retailer, Seattle-based Nordstrom Inc., had sent a letter to the panel opposing the bill. Nordstrom, however, owns a sizable Visa-branded credit and debit card portfolio and hence receives interchange revenues. Conyers in his statement insisted as he has since introducing the bill in March that it is not an effort to set price controls. “Currently, the retailers are forced to enter take-it-or-leave-it contracts before they can accept Visa and MasterCard at their stores,” he said. “H.R. 5546 simply levels the playing field and encourages negotiation.”