Legislation that would give merchants the power
to negotiate over interchange fee levels has passed the first
hurdle on the path to becoming US law but, as Charles
Davis reports, Visa and MasterCard are expected to put up a
strong fight against further regulatory intervention.
to negotiate over interchange fee levels has passed the first
hurdle on the path to becoming US law but, as Charles
Davis reports, Visa and MasterCard are expected to put up a
strong fight against further regulatory intervention.
The volatile combination of soaring petrol
prices and merchant unrest over interchange fees has found
political traction on Capitol Hill. In a 19-16 vote backed by the
powerful retailer lobby, a key US House committee passed the Credit
Card Fair Fee Act, legislation that would for the first time
require credit card companies to negotiate the interchange fees
they charge merchants for electronic transactions.
prices and merchant unrest over interchange fees has found
political traction on Capitol Hill. In a 19-16 vote backed by the
powerful retailer lobby, a key US House committee passed the Credit
Card Fair Fee Act, legislation that would for the first time
require credit card companies to negotiate the interchange fees
they charge merchants for electronic transactions.
The committee added a compromise amendment to
the original bill, eliminating a provision that would have
established a panel of three federal judges who would have made a
final decision on interchange rates if negotiations broke down
between card networks and retailers. The bill also includes a new
amendment prohibiting merchants or card issuers from boycotting
payment systems or retailers during negotiations.
the original bill, eliminating a provision that would have
established a panel of three federal judges who would have made a
final decision on interchange rates if negotiations broke down
between card networks and retailers. The bill also includes a new
amendment prohibiting merchants or card issuers from boycotting
payment systems or retailers during negotiations.
Committee members crossed party lines debating
the bill, with some Republicans voting to approve the bill and some
Democrats voting against. Ultimately, 10 Democrats and nine
Republicans voted to approve the bill, while eight Democrats and
eight Republicans voted against it.
the bill, with some Republicans voting to approve the bill and some
Democrats voting against. Ultimately, 10 Democrats and nine
Republicans voted to approve the bill, while eight Democrats and
eight Republicans voted against it.
The committee also agreed to an amendment by
Representative Dan Lungren (Republican, California) that would
exclude merchants engaged in an unlawful boycott from immunity from
anti-trust laws to negotiate the interchange fees.
Representative Dan Lungren (Republican, California) that would
exclude merchants engaged in an unlawful boycott from immunity from
anti-trust laws to negotiate the interchange fees.
Bill faces tough fight
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The panel voted down by voice vote an amendment that would have
defined a merchant as a person who accepts credit cards and debit
cards as payment for goods or services and employs fewer than 50
employees. The effect would be to limit the negotiations to smaller
merchants.
The bill’s narrow passage from the committee
suggests it may face a tough time getting to the floor this year.
Representative Zoe Lofgren (Democrat, California) said she would
work with Democratic Congressman John Conyers, the House judiciary
committee chairman, next year on the legislation if it is not
enacted.
suggests it may face a tough time getting to the floor this year.
Representative Zoe Lofgren (Democrat, California) said she would
work with Democratic Congressman John Conyers, the House judiciary
committee chairman, next year on the legislation if it is not
enacted.
The measure faces opposition from big credit
card players including
Visa, as well as credit unions and the Electronic Payments
Coalition, who sees the bill as a “sweetheart deal” for
retailers.
card players including
Visa, as well as credit unions and the Electronic Payments
Coalition, who sees the bill as a “sweetheart deal” for
retailers.
“This legislation would essentially legalise
collusion among the nation’s largest and most profitable retailers
at the expense of consumers, community banks, and credit unions,”
Visa general counsel Josh Floum said in a statement.
collusion among the nation’s largest and most profitable retailers
at the expense of consumers, community banks, and credit unions,”
Visa general counsel Josh Floum said in a statement.
“Both the Department of Justice and the Federal
Trade Commission have already stated this type of legislation will
reduce competition and harm consumers.”
Trade Commission have already stated this type of legislation will
reduce competition and harm consumers.”
However, the Merchants Payments Coalition said
in a statement: “This victory is a landmark decision that reaches
across party lines in reining in Visa and MasterCard’s stranglehold
over merchants and consumers.”
in a statement: “This victory is a landmark decision that reaches
across party lines in reining in Visa and MasterCard’s stranglehold
over merchants and consumers.”
Opposition mounting
MasterCard Worldwide issued a statement announcing that more
organisations are taking a stand against the bill, including
Nordstrom, the Black Chamber of Commerce and the Southern Christian
Leadership Conference.
According to MasterCard’s statement, Nordstrom
executive vice-president Kevin Knight told the judiciary committee
in a recent letter that the retailer prefers “market competition to
regulation”.
executive vice-president Kevin Knight told the judiciary committee
in a recent letter that the retailer prefers “market competition to
regulation”.
MasterCard added it sees no need for government
intervention in interchange rates.
intervention in interchange rates.
“Such policy decisions in the past have proven
to be unworkable, unpopular and detrimental to the free market
economy,” said Noah Hanft, MasterCard general counsel and chief
franchise officer.
to be unworkable, unpopular and detrimental to the free market
economy,” said Noah Hanft, MasterCard general counsel and chief
franchise officer.
“The mark-up of (the bill) only raises more
questions and concerns about an already bad bill,” added Visa Inc
general counsel Josh Floum in a statement.
questions and concerns about an already bad bill,” added Visa Inc
general counsel Josh Floum in a statement.
The vast majority of large US retail
associations support the bill and are riding a wave of consumer
dissatisfaction with the economy driven by rising prices at the
petrol pump to bolster lobbying efforts.
associations support the bill and are riding a wave of consumer
dissatisfaction with the economy driven by rising prices at the
petrol pump to bolster lobbying efforts.
A recent poll released by the Merchants
Payments Coalition found about three out of four voters (77
percent) favour the Credit Card Fair Fee Act. The issue is
impacting people across party lines with 51 percent of Republics
and Democrats saying they are concerned about rising fees and that
they would support the passage of the Act.
Payments Coalition found about three out of four voters (77
percent) favour the Credit Card Fair Fee Act. The issue is
impacting people across party lines with 51 percent of Republics
and Democrats saying they are concerned about rising fees and that
they would support the passage of the Act.
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By GlobalDataWill the consumer benefit?
The financial services industry counters by arguing that the bill
would give the nation’s 9 million retailers the power to collude
and dictate the interchange fee.
Besides, industry lobbyists argue that
competition already exists in the market. If the companies set the
rate too high, merchants won’t accept their cards. If the rate is
set too low, banks won’t offer the cards to their customers, argue
the issuers.
competition already exists in the market. If the companies set the
rate too high, merchants won’t accept their cards. If the rate is
set too low, banks won’t offer the cards to their customers, argue
the issuers.
Issuers and retailers opposed to the bill also
have a powerful set of allies in the regulatory community, as both
the Justice Department and the Federal Trade Commission have spoken
out against the legislation.
have a powerful set of allies in the regulatory community, as both
the Justice Department and the Federal Trade Commission have spoken
out against the legislation.
In a letter sent on 23 June to Representative
Lamar Smith, the Justice Department outlined “serious concerns”
regarding the bill, concluding that it “may actually harm
consumers, not benefit them”.
Lamar Smith, the Justice Department outlined “serious concerns”
regarding the bill, concluding that it “may actually harm
consumers, not benefit them”.
The US Department of Justice and Federal Trade
Commission responded to a request for comment on the bill from
Smith in letters this week. In separate letters, the two federal
agencies that would be responsible for administrative
responsibilities of the proposed legislation strongly opposed the
anti-trust exemption portion of the bill.
Commission responded to a request for comment on the bill from
Smith in letters this week. In separate letters, the two federal
agencies that would be responsible for administrative
responsibilities of the proposed legislation strongly opposed the
anti-trust exemption portion of the bill.
In its letter, the Department of Justice
advised Congress: “The joint negotiations among merchants exempted
by the bill appear to be the type of naked collusion that the
anti-trust laws condemn as per se unlawful.”
advised Congress: “The joint negotiations among merchants exempted
by the bill appear to be the type of naked collusion that the
anti-trust laws condemn as per se unlawful.”
The Department of Justice also noted that this
action would create a slippery slope that could allow the
anti-trust exemption to extend beyond the electronic payments
systems.
action would create a slippery slope that could allow the
anti-trust exemption to extend beyond the electronic payments
systems.
The days and weeks to come are sure to see some
of the highest-powered lobbying in recent years, as small armies of
lobbyists are arrayed on each side of the issue. With no end in
sight to record US petrol prices and a presidential election for a
backdrop, the saga of the Credit Card Fair Fee Act has only just
begun.
of the highest-powered lobbying in recent years, as small armies of
lobbyists are arrayed on each side of the issue. With no end in
sight to record US petrol prices and a presidential election for a
backdrop, the saga of the Credit Card Fair Fee Act has only just
begun.
