June 9, 2009
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News: Durbin Sponsors CC Fair Fee Act
Senator Bill Durbin (D-IL) is sponsoring the reintroduction of the Credit Card Fair Fee Act, which seeks to give retailers rights to negotiate interchange fees. An interchange fee is what the merchant's bank pays the customer's bank for each card transaction using card networks such as Visa and MasterCard. In addition to deducting the interchange fee from the sales amount when paying the merchant, the card issuing bank also deducts an additional fee for their service. Credit card networks like Visa and MasterCard ultimately receive the fee and have control over setting the fee rates. At the current time, merchants have no voice in how the fee is set and are not invited into any meetings for negotiations. Statistics have shown that consumers use their credit cards in over 40% of all purchases. Interchange fees range anywhere from 1.5% to more than 2% of the sales transaction. In 2008, merchants paid nearly $48 billion; a number that has risen steadily each year. Many merchants would go out of business if they were to refuse card payment. There really is no choice for them but to continue paying the high interchange fees.
Several retail organizations and some lawmakers believe that merchants should have the right to be a part of the negotiations with credit card bank networks in establishing interchange fees. On the other hand, banks say large retailers just want to avoid paying any of the fees. In a statement, Edward Yingling, President of the American Bankers Association, said that retailers are supporting the new act for "their own selfish purposes" and in the end it is the consumer who will lose. Additionally, opponents of the act maintain that any further credit card regulation by the federal government would only result in less competition, fewer choices, and higher prices.
The House of Representatives has introduced their own version of the legislations. Their version does not provide for a Justice Department and Federal Trade Commission committee that would intervene between merchants and credit card companies if interchange fee negotiations should fail. The legislation is not expected to pass quickly and most interested parties believe it will not be until 2010 before something comes of it.