The Market Institute

House Judiciary Committee

summarized by Kendall Satcher

The House Judiciary Committee recently held a hearing on H.R. 2695, the Credit Card Fair Fee Act of 2009.  This law would allow market-based negotiations between banks and merchants to take place on the pricing of interchange fees, or the charges merchants pay for their customers swiping a credit or debit card.  Merchants say these “swipe” fees are a suffocating and
increasing cost, and that credit card companies are violating antitrust laws in setting these high fees and refusing to lower them.  Credit Unions, however, say these fees are important in maintaining their thin profit margins, and without them would not be able to compete with larger banks.  Although the bill would include an exemption from credit unions having to negotiate, John Blum, Vice President of Chartway Federal Credit Union, testified that this would lead to their cards being viewed disparagingly when their members try to use them at retailers.  Concerns were also raised by committee members about allowing an antitrust exemption to negotiate during such a downturn in the economy.  A panel of experts on the topic discussed the effects of these high fees, as well as the repercussions the Act would have for credit unions and community banks.

Doug Kantor, of the National Association of Convenience Stores, testified:

• Visa, MasterCard, and their member banks fix interchange fees in violation of ant-trust laws
• The centralized setting of the swipe fees charged by banks amounts to price fixing and an illegal restraint of trade
• Swipe fees collectively deprive businesses that accept credit and debit cards as well as consumers of the benefits of competitive market forces because they are set up by Visa and MasterCard
• Many banks who sit on the boards of Visa and MasterCard decide the fees that will be charged
• The major credit card companies set rules that include a provisions that hide fees in cost of goods and services that consumers pay
• Credit card companies discourage and threaten with higher fees retailers who offer a cash discount
• Americans pay inflated prices on nearly everything they own because of swipe fees
• The current interchange fee system overwhelmingly benefits a very small number of large banks

Dave Carpenter, owner of six ShortStop convenience stores, testified:

• Credit card interchange fees are his second largest expense, second only to labor
• 80% of his stores’ transactions are from a credit or debit card
• For one of his stores interchange fees are twice what he pays for rent, four times more than utilities, and thirty times more than health insurance
• Interchange fees have grown more rapidly and significantly than all other expenses
• Carpenter stated that if interchange fees were lower he would pass that savings onto customers

Edmund Mierzwinski, Consumer Program Director of the U.S. Public Interest Research Group, testified:

• Visa and MasterCard have tremendous market power, which allows them to dictate the terms of trade: merchants have no choice but to accept Visa and MasterCard products on the sellers’ terms
• The card associations’ rules prevent merchants from informing consumers on the costs of payment and limit the ability of merchants to direct consumers on the costs of payment and limit the ability of merchants to direct consumers to the safest, lowest cost, and most efficient forms of payment

John Blum, Vice President of Operations for Chartway Federal Credit Union, testified:

• The Act would give merchants an exemption from federal antitrust laws, allowing them to negotiate in anti-competitive manner in order to shift their payment card acceptance costs to consumers, credit unions, community banks and other financial institutions
• The electronic payment system is integral in allowing credit unions to compete with the largest financial institutions
• Capping or placing new restrictions on interchange fees would ultimately provide an advantage to large financial institutions at the expense of credit unions
• If credit unions decide to opt out of the negotiated rates, they may find an environment where their plastic cards may be overtly or covertly discouraged by merchants
• Interchange fees are not a hidden tax or fee on consumers, but a cost of doing business like electricity, gas, or rent
• Credit and debit cards generate little little income outside of interchange fees
• This Act would be disastrous for credit unions whom are not-for-profit, and thus operate on thinner margins, with less income, a smaller customer base and fewer total assets than traditional banks