Visa and MasterCard are facing more
scrutiny from US Congressional lawmakers over the setting of
interchange fees, amid growing discontent from retailers and
merchants which claim that such fees are a violation of federal
antitrust law and cost consumers over $40 billion a year.

On 19 July, the US House Judiciary Committee Antitrust Task
Force heard testimony from disgruntled merchant and consumer
bodies, including the National Retail Federation (NRF) and the US
Public Interest Research Group. They claim Visa and MasterCard are
colluding to set interchange fees in much the same way as a
price-fixing cartel, and that the system lacks transparency.

This is the fourth Congressional session this year focusing on
practices within the payment card industry, but the first to focus
specifically on interchange. Earlier this year, card issuers
including Citi, Bank of America and Barclaycard faced Congressional
lawmakers and came under intense pressure to modify and improve fee
structures and consumer disclosure relating to default fees.

This time, Visa and MasterCard are facing stringent criticism
about interchange from their most ardent foes. The NRF is a retail
industry umbrella body and represents more than 1.6 million US
retail establishments. It is also a member of the Merchants
Payments Coalition, a group of 22 national and more than 70 state
trade associations. The coalition’s merchant associations account
for more than 60 percent of the non-automotive card-based
transaction volume in the US

According to the NRF, interchange averages close to 2 percent
for every credit card or signature debit card transaction, and the
NRF says that Visa and MasterCard collected more than $36 billion
in interchange fees in 2006, up 17 percent from 2005 and 117
percent since 2001. The NRF says that in 2007 the amount is
expected to top $40 billion.

At the hearing, Mallory Duncan, senior vice-president, general
counsel for the NRF and chairperson of the Merchants Payments
Coalition, said: “By a very conservative estimate, Visa and
MasterCard together control more than 80 percent of the credit card
market. The vast majority of merchants therefore have no choice but
to accept their cards. Tellingly, in other nations that have put an
end to this price-fixing scheme by Visa and MasterCard, merchants
and consumers have benefited.

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Interchange fees

“These fees should be lower in the United States than in other
countries because we have the largest transaction volume (which
should create economies of scale) and we have the best technology
and very low fraud rates. Unfortunately, however, US merchants and
consumers are being fleeced.”

He also urged lawmakers to take a tougher line with the card
schemes. “Visa and MasterCard consistently want to skip over anyone
analysing the actual problem and simply want to criticise potential
solutions or regulatory schemes in other parts of the world. There
are a broad range of legislative solutions – both within and
outside this committee’s jurisdiction – that could improve on the
current system,” he said.

“The antitrust problems and lack of a competitive interchange
fee market cry out for solutions and there are many that do not
constitute the government price control bogeyman that the credit
card companies claim we want.”

The chairman of the task force, John Conyer, also increased the
pressure on the card networks by saying: “While I come into the
hearing with an open mind, I do believe the burden of proof lies
with the credit card companies to reassure Congress that increasing
interchange fees are not harming merchants and ultimately

Additional hearings over interchange are expected in the US
Senate Banking Committee and the US House Financial Services
Committee later this year.