Rep. Watt is the first member of Congress to publicly criticize the regressive impact of interchange fees, which are paid by all consumers, even those who use checks or cash, because card company rules force retailers ultimately to build these fees into the cost of all products. "There is substantial cross-subsidization going on in this market," he said, with hidden interchange fees being a costly example.
He voiced concern that only a small portion of interchange covers transaction costs, while the fees help pay for the deluge of credit card solicitations, totaling nearly eight billion in 2006 alone. "I get at least a solicitation a day asking me to take out a different credit card — even from lenders I already have a credit card from, wanting me to upgrade. I uniformly throw those things in the wastebasket, but someone is paying for those mailings."
He closed by challenging the credit card companies and banks to resolve these issues, suggesting that Congress will take action if they do not. "Somebody tell me what the solution to this problem is short of our legislating in this area." He asked the hearing witnesses, including American Bankers Association President and CEO Edward L. Yingling, to submit suggested solutions in writing.
"Congressman Watt clearly understands the full range of problems with the broken interchange fee system in America," said FMI President and CEO Tim Hammonds. "The fees are regressive, excessive and pay for billions of junk mail solicitations that nearly all consumers do not need or want."
"Interchange is by far the most costly card-based fee paid by Americans," Hammonds added. "It’s also important to know that these fees are fixed in secret by Visa and MasterCard and their card-issuing banks. We applaud the congressman for demanding solutions and calling for legislation if the card companies and banks fail to respond."
Watt is the fourth prominent member of Congress this year to call for action to fix the interchange fee system. The others were Sen. Norm Coleman (MN), the ranking Republican on the Senate’s Permanent Subcommittee on Investigation; Senate Banking Committee Chairman Christopher Dodd (D-CT); and Sen. Arlen Specter (PA), the ranking Republican on the Senate Judiciary Committee.
Interchange fees totaled $30.7 billion in 2005 and $36.3 billion in 2006 — an 18 percent increase in just one year. The cost of interchange has more than doubled since 2001.
These fees are assessed on every credit and signature debit card transaction, averaging close to 2 percent. In the long run, retailers are forced to build them into the cost of all transactions because card company rules prohibit surcharges on plastic payments and effectively prevent retailers from offering discounts to consumers who pay by cash or check. Credit card company rules make it virtually impossible to inform consumers about these fees.
FMI is a leading member of the Merchants Payments Coalition, which is fighting for fair and transparent interchange fees. To learn more, visit the coalition website www.unfaircreditcardfees.com.
Contact:
Bill Greer
202-220-0667
wgreer@fmi.org
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