NRF Exec: Non-Credit Card Discounts Have a ’50-50′ Chance

The U.S. Senate didn't pass a credit card reform bill last week as many expected, but senators are expected to take up the issue again Tuesday. The question for the merchant-acquiring industry is whether the final bill, which is concerned with regulating credit card issuers' most controversial practices, also would give merchants the green light to discount prices for cash, checks, or debit cards. Discounts are the essence of an amendment backed by Sens. Richard Durbin, D-Ill., the Senate's assistant majority leader, and Kit Bond, R-Mo. (Digital Transactions News, May 14). Mallory Duncan, senior vice president and chief counsel of the National Retail Federation, gave discounts a “50-50” chance of surviving the volatile pre-Memorial Day legislative process. Any Senate bill with such a provision would have to be reconciled with the already-passed House version, which addresses only the issuer-related matters. Duncan, who spoke Friday at the Federal Reserve Bank of Chicago's annual payments conference, noted that bank card network acceptance rules technically permit discounting, but claimed that the rules of Visa Inc., the largest network, work against the practice. Only retailers that sell a small number of products, such as gas stations, can easily offer discounts because they have to post both prices, he said. “Visa makes it difficult for merchants to price if they have lots of different products,” he said. Duncan's comments came during a panel session about the future of payments and whether the public sector should intervene in the private market. The NRF and many other merchant groups strongly backed Congressional limits on payment card interchange in the past year. Visa wasn't on the Chicago Fed panel, but two of its former executives were: consultant Eric Grover of Intrepid Ventures and attorney Thomas P. Brown, now a partner in antitrust practice at the San Francisco office of O'Melveny & Myers LLP. Both strongly defended interchange. In fact, Brown ridiculed retailers for wanting the government to stay out of one part of their business, labor relations, by defeating the union-backed “card-check” bill that would make it easier for workers to organize, but at the same time asking government to intervene in payments. “Apparently what's good for the goose is not good for the gander,” he said. Duncan, however, said, “we're all for competition, we're all for transparency.” The problem with interchange, he said, is that the process of setting prices is “not transparent.” Another panelist, Adam J. Levitin, an associate professor of law at Georgetown University in Washington, D.C. who has questioned the current interchange structure, called the Durbin-Bond proposal “really a very, very minor change” in what federal law permits regarding price discounting. The real problem, he said, is that merchants can't refuse to accept rewards credit cards that carry the highest interchange rates. “There's nothing in the law that distinguishes between rewards cards and non-rewards cards,” he said. On a separate panel, a PayPal Inc. executive noted the large amount of interchange and related fees that PayPal as a merchant and user of payment network services pays. “This year we'll pay nearly $1 billion in fees,” said Dickson Chu, vice president of global product and experience. “It's our largest line item, hands down.” At the same conference a day earlier, a Wal-Mart Stores Inc. executive said his company pays more than $1 billion annually in total acceptance costs, including interchange, a comment that was part of a heated debate about interchange (Digital Transactions News, May 14).