Banks Say Interchange Bill Will Hurt Consumers

Merchants and credit card issuers battled it out on Thursday as they testified to Congress on interchange fees. H.R. 2382, the Credit Card Interchange Fees Act of 2009, is a bill to amend the Truth in Lending Act, introduced in May by Representatives Peter Welch (D-VT) and Bill Shuster (R-Pa).

The American Bankers Association (ABA) in a statement submitted to the House Financial Services Committee urged Members of Congress to oppose H.R. 2382, saying that the bill "would undercut a 50-year old electronic payments system that is efficient, accessible, reliable, global, and based on a pricing system that benefits consumers, businesses, and the broader economy."

“The United States has the most innovative, efficient and cost-effective consumer credit market in the world, providing fast, safe and low-cost transactions that benefit consumers and retail merchants,” the ABA said in its statement. “The value delivered through this payment system to consumers, merchants and financial services organizations far exceeds the costs.”

The interchange fee, or "swipe fee" is a charge the merchants pay for a consumers' credit card transaction. In the U.S., interchange fees for credit cards are approximately 2% of the amount of the transaction. Interchange fees for debit cards are less than that of credit cards.

Highlights of the bill center on capping the interchange fee by prohibiting additional charges for consumers' use of "premium cards", such as rewards cards and corporate cards. and prohibiting a minimum transactions requirement for retailers. The bill will put the Federal Trade Commission (FTC) in charge of ensuring that the rules, terms, and conditions involving interchange fee agreements are not unfair, deceptive, or anticompetitive to the merchant or consumer. Also, the bill directs the Federal Reserve to collect and make public the interchange fee rates that card issuers are charging.

“The interchange fee is not paid by consumers but by acquiring banks to issuing banks,” the ABA said in its statement. “Merchants pay to accept card payments because doing so enhances their business. “The current payments system reflects a business arrangement among business partners that provides benefit to all involved.”

The ABA said that the bill would increase costs and reduce benefits for consumers, and "despite the attempt of H.R. 2382 to cloak interchange as a consumer protection issue, it is really a business-to-business concern."

The Electronic Payments Coalition (EPC) issued a similar statement on Wednesday ahead of the hearing, "H.R. 2382 is one of the most egregious assaults on consumer protection that this country has seen in some time. Disguised as a measure to allow for cash discounts - something that is already allowed by federal law and by all card network contracts - the bill would instead open up the door for bait-and-switch advertising schemes, charging additional checkout fees at the register, and discrimination against certain card holders. The bill is chock full of provisions that mean one thing: consumers will pay more so merchants can pay less. Bottom line - retailers don't want to pay their fair share for a service that brings them more sales and higher profits - and want their customers to pick up the tab instead."

The EPC includes credit unions, banks, and payment card networks "that move electronic payments quickly and securely between millions of merchants and millions of consumers across the globe." Members include VISA Inc., Mastercard Worldwide, JPMorgan Chase, Capital One, Citibank, HSBC, Bank of America, Wells Fargo, and the ABA.


Sources:
American Bankers Association
Greensheet
GovTrack.us