Introduced to the US Congress by John Conyers, chairman of the
House Judiciary Committee, and Congressman Chris Cannon, the Credit
Card Fair Fee Act (CCFFA) has been applauded by retail
organisations nationwide.
The product of a hearing by the bi-partisan House Judiciary
Antitrust Task Force Subcommittee into the fees, policies and
practices of the credit card industry in July 2007, the CCFFA, said
Cannon, addresses the “anti-competitive and secretive” system of
setting fees that merchants pay for credit card transactions.
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High cost of fees
A primary objective of the CCFFA is to enable merchants to
negotiate interchange fees which, according to industry body the
Merchants Payments Coalition (MPC), are on average three times
higher than in Europe, amount to as much as $2 of every $100 spent
on a credit card transaction and cost the average American family
about $300 a year. MPC data also reveals that, in total, credit
card companies and banks collected more than $36 billion in
interchange fees in 2006, up 17 percent from 2005 and 117 percent
since 2001.
According to a study undertaken by consultancy Diamond
Management & Technology Consultants in 2006, transaction
processing costs account for only 13 percent of interchange
fees.
“We welcome this effort to stop the price-fixing practices of
the credit card industry and create a transparent market-based
process,” said the MPC’s chairman, Mallory Duncan. The primary
lobbying force in the US retail industry, the MPC represents 97
national and state retail organisations with members operating 2.7
million retail locations and employing about 50 million
people.
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By GlobalDataIn favour of competition
In support of Duncan’s view, Tim Hammonds, CEO of MPC member the
Food Marketing Institute, said: “This legislation will bring
competition to a severely broken system that unjustly inflates the
cost of goods and services for all consumers. Virtually every
developed economy in the world has found these fees abusive and
illegal – even at levels far lower than what Americans pay. We can
now work toward a solution where economies of scale, innovation and
competition, the forces that drive free enterprise, decide credit
card processing fees.”
Incorporated in the CCFFA is a proposal that the Federal Trade
Commission and the Department of Justice’s anti-trust division
appoint three full-time electronic payment judges whose function
would be determine fair terms and rates under which merchants
should have access to credit card networks.
According to the bill, the judges would “calculate to most
closely represent the rates and terms that would be negotiated in a
hypothetical perfectly competitive marketplace for access to an
electronic payment system between a willing buyer with no market
power and a willing seller with no market power. In determining
such rates and terms, the electronic payment system judges shall
consider the costs necessary to provide and access an electronic
payment system for processing credit and/or debit card transactions
as well as a normal rate of return in such a hypothetical perfectly
competitive marketplace.”
Not unanimously welcomed
The CCFFA has, however, not gone down well with many participants
in the credit card market, who view it as heralding the imposition
of price control. Major opponents of the CCFFA include MasterCard,
the American Financial Services Association, the Independent
Community Bankers of America, the American Bankers Association
(ABA), the Financial Services Roundtable, the National Association
of Federal Credit Unions and the Consumer Bankers Association.
In a statement, MasterCard stressed that the CCFFA is an attempt
by merchants and the MPC “to put in place price controls which will
harm competition and the card products and services offered to
consumers”. MasterCard added there is no evidence that demonstrates
price controls would result in savings being passed on to
consumers.
The ABA, a body representing 95 percent of the US banking
industry’s participants measured in terms of total assets, was
particularly outspoken in its opposition to the CCFFA. “By creating
an impractical federal bureaucracy, this legislation
inappropriately puts the government in the role of setting prices
in the private marketplace, undercutting a pricing system that
currently benefits consumers, businesses and the broader economy,”
the ABA said in a statement. “The result will be less competition,
fewer choices and ultimately higher prices for consumers, as is
always the case when government tries to fix prices.”
