A report from the Government Accountability Office (GAO) in November gives considerable political impetus to congressional proposals that would give retailers — aftermarket and others — more bargaining leverage with credit card companies on interchange and other fees.
The precipitous increase over the years in those "merchant" fees came up during debate on The Credit Card Accountability Responsibility and Disclosure Act of 2009 (called the Credit CARD Act for short), which President Obama signed into law last May.
But the bill did not include any provisions that would have allowed retailers to strengthen their negotiation hand. Instead, the bill authorized the GAO report.
The GAO says "our own analysis of Visa and MasterCard interchange rate schedules shows that the interchange rates for credit cards have been increasing and their structures have become more complex, as hundred of different interchange fee rate categories for accepting credit cards now exist."
The GAO does not come to conclusions, or make policy recommendations. But the underlying message is clear. Credit cards do bring in-store sales and save on labor. But higher acceptance costs to retailers are now outstripping increased sales due to use of those cards.
Currently, neither the Federal Reserve nor any federal banking agency regulates interchange fees, which the credit card company divvies up between the merchant's bank and the customer's bank.
The banks pass those on to the retailer with smaller retailers paying higher fees, which can reach up to 3 percent of the purchase price of an item. But while the fees themselves are not regulated, the way the credit card companies appear to collude on setting those fees has been the subject of lawsuits filed by merchants alleging anti-trust violations.
About 14 such separate lawsuits have been collectively consolidated into one class action lawsuit in the United States District Court for the Eastern District of New York.
There is already one anti-trust-oriented piece of interchange fee legislation in the House and Senate Judiciary Committees, and a separate bill that would get the banking agenciees onto the interchange regulatory turf for the first time. Those bills could proceed under their own steam with the push provided by the GAO report.
That report comes at a time when both the House and the Senate are considering major bills on "financial stability." The prime emphasis in both houses is giving the federal government new authority to prevent the failure of companies like AIG or General Motors, those judged "too big to fail" because of the impact of their failure on the U.S. economy. However, these bills are likely to have a number of consumer financial provisions, and credit card prohibitions could come into play.
The House Financial Services Committee held hearings on interchange fees in October and aired the provisions of a bill from Rep. Peter Welch (D-Vt.), called the Credit Card Interchange Fees Act of 2009 (H.R. 2382). The bill was introduced after the Credit CARD Act passed Congress last May; so its pro-merchant provisions could not be included in that earlier bill.
Welch's bill would, among other things, establish a process by which merchant groups and providers of access to credit card networks could negotiate interchange fees and other terms of network participation under an exemption from federal anti-trust laws. The interchange fee would be made publicly available. Rep. John Conyers (D-Mich.), chairman of the House Judiciary Committee, and Sen. Richard Durbin (D-Ill.), the No. 2 man in the Senate Democratic leadership, have introduced the Credit Card Fair Fee Act (H.R. 2695/S. 1212).
"The bill creates a limited antitrust immunity for negotiating voluntary agreements," explains Conyers. "This legislation is intended to give merchants a seat at the table in the determination of these fees."
