“This law simply gives retailers the right to negotiate reasonable fees with credit card companies, a fundamental practice in the American free enterprise system,” said John J. Motley, III, FMI senior vice present of government and public affairs. “As it stands now, they set the fees in secret, and the cost to merchants and, ultimately, to consumers is skyrocketing.”
The cost of the largest transaction fee, interchange, has tripled since the beginning of this decade, from $16.6 billion in 2001 to a projected $48.8 billion this year, according to the Merchants Payments Coalition and data from The Nilson Report.
The legislation would allow merchants to negotiate fees with the credit card companies. If the negotiators cannot reach an agreement, the decision would move to binding arbitration. The arbiters would pick the rate that best reflects what would be charged in a perfectly competitive market from the final offers of the credit card companies and merchants.
Interchange Fees Far Exceed Actual Transaction Costs
Credit card companies extract an interchange fee averaging about 2 percent on every credit card transaction. It is well documented that current U.S. interchange rates far exceed actual transaction costs. Only 13 percent of the fee covers the cost to process a transaction, according to the financial services industry research firm Diamond Management & Technology Consultants (A New Business for Card Payments, 2006). As much as 44 percent pays for credit card rewards programs. The fees also help pay for marketing programs, including more than five billion direct mail solicitations per year, according to Synovate, a card industry research firm.
In the end, all consumers pay these fees — whether they pay by plastic, cash or check — because card company rules effectively force retailers to build them into the price of all goods and services.
Legislation Has Strong Bipartisan Support
The Credit Card Fair Fee Act enjoys strong bipartisan support. Judiciary Committee Chairman John Conyers (D-MI) introduced the bill in March with Utah Republican Rep. Chris Cannon. All together, 32 members of the U.S. House of Representatives — 18 Democrats and 14 Republicans — have signed on to the bill, including:
| Democrats | Republicans |
| Thomas Allen (Maine) | John Boozman (Arkansas) |
| Russ Carnahan (Missouri) | Chris Cannon (Utah) |
| Christopher Carney (Pennsylvania) | Philip English (Pennsylvania) |
| John Conyers (Michigan) | Louis Gohmert (Texas) |
| William Delahunt (Massachusetts) | Ralph Hall (Texas) |
| Keith Ellison (Minnesota) | John Peterson (Pennsylvania) |
| Charles A. Gonzalez (Texas) | Todd Platts (Pennsylvania) |
| Sheila Jackson-Lee (Texas) | Jon Porter (Nevada) |
| Eddie Bernice Johnson (Texas) | William Shuster (Pennsylvania) |
| Steve Kagen (Wisconsin) | John Sullivan (Oklahoma) |
| Zoe Lofgren (California) | Patrick Tiberi (Ohio) |
| James Marshall (Georgia) | Zach Wamp (Tennessee) |
| Betty McCollum (Minnesota) | Edward Whitfield (Kentucky) |
| Jerry McNerney (California) | Joe Wilson (South Carolina) |
| Heath Shuler (North Carolina) | |
| Anthony Weiner (New York) | |
| Peter Welch (Vermont) | |
| John Yarmuth (Kentucky) |
The introduction of this legislation follows three congressional hearings on interchange fee issues, including one on July 19, 2007, by the House Judiciary Committee Antitrust Task Force and two in 2006 by the full Senate Judiciary Committee on July 19 and by the House Commerce Subcommittee on Commerce, Trade and Consumer Protection on February 15. The U.S. Justice Department revealed at the 2007 hearing that it is investigating interchange fee antitrust issues.
FMI supports the bill as a leading member of the Merchants Payments Coalition, a group of nearly 100 associations representing retailers, supermarkets, drug stores, convenience stores, fuel stations, online merchants and other businesses that accept debit and credit cards. The MPC is fighting for a more competitive and transparent card system in which interchange fees are based on actual transaction costs. The coalition’s member associations collectively represent about 2.7 million stores with about 50 million employees.
Paid by Retailers and, Ultimately, by Consumers
(in billions of dollars)
*Projection assuming, conservatively, a 16% annual increase. Total interchange costs increased 16.7% from 2004-2005 and 18.2% from 2005-2006.
Note: Figures for 2003 are not available.
Sources: The Nilson Report, Merchants Payments Coalition, Food Marketing Institute.
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