New legislation that would enable merchants to negotiate the interchange fees charged on card transactions by Visa and MasterCard is being introduced by the US House Judiciary Committee.
The Credit Card Fair Fee Act, which has been introduced by John Conyers, chairman of the committee, is the first attempt by US Congress to address credit card interchange fees and is the outcome of a hearing held last year by the House's anti-trust workforce.
In a statement to the committee, Conyers says the bill "seeks to give merchants a seat at the negotiating table to determine the fees assessed for every sale made by credit card".
Interchange fees currently comprise 90% of transaction fees charged to merchants. The percentage is set by the credit card companies - generally Visa or MasterCard - and averages 1.75% of the total purchase price. In 2006 Visa and MasterCard banks collected more than $36 billion in interchange fees last year, up 17% from 2005 and 117% since 2001. In 2007, the fees amounted to $42 billion.
US retailers and trade groups have been angered by interchange fees charged on card transactions and have filed dozens of lawsuits against MasterCard, Visa and many card issuing banks over the setting of the fees.
Last year The Merchants Payments Coalition (MPS) accused the credit companies of using a portion of the interchange fee - which is meant to cover processing costs - for marketing campaigns instead.
The coalition said last July that a study had shown that card companies and banks spend only about 13% of the interchange fee on actual processing. The rest goes on marketing, profit and other services like rewards programmes.
In his statement to the committee, Conyers said these fees are ultimately passed on to all consumers in the form of higher prices for goods and services, whether the consumers purchase these items by credit card, cheque or cash.
"Merchants are forced to deal within this system because it is simply not an option to refuse to accept Visa or MasterCard from their customers," he adds. "They are presented with take-it-or-leave-it options and are not part of the process by which the fees are set. Moreover, the card systems operate pursuant to comprehensive operating rules approved by the associations' member-controlled boards, but these operating rules are not accessible by the merchants."
Conyers argues that the legislation would "help level the playing field for merchants and retailers negotiating with banks for the cost of certain fees, and ultimately reduce the costs of everyday goods for consumers".
The bill creates a limited antitrust immunity for negotiating voluntary agreements and participating in the "market-based proceedings" which will determine the exclusive rates and terms merchants must pay for a three year term. No other fees, terms or conditions may be imposed on the merchants, says Conyers.
The rates and terms will be determined by Electronic Payment System Judges, who will be appointed by the Department of Justice's anti-trust division an the Federal Trade Commission (FTC).
US merchant groups have welcomed the move to implement the new legislation. Mallory Duncan, senior vice president of the National Retail Federation (NRF), says the introduction of this legislation "marks the beginning of the end of credit card company rip-offs".
"Rather than allowing these fees to continue to be set in secret and imposed on a take it or leave it basis, this legislation would require negotiations and allow retailers to seek fair terms and conditions that will ultimately mean a better deal for consumers," says Duncan.
Tim Hammonds, president and CEO of Food Marketing Institute and MPC member, says the legislation will "bring competition to a severely broken system that unjustly inflates the cost of goods and services for all consumers".
"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," he adds.
The US move follows recent action by the European Commission against MasterCard over interchange fees charged on cross-border card. The EC said in December that an investigation had found that the multilateral interchange fees (MIF) charged for cross-border transactions made with MasterCard and Maestro debit and credit cards violated EC Treaty regulations.
The Commission said MasterCard had six months to scrap the non-negotiable interchange fees or incur daily penalty payments.
MasterCard said earlier this week that it had applied to the European Court of First Instance to annul the EC's decision.
The Commission is also reported to be investigating the interchange fees charged by Visa Europe following the expiry of an antitrust agreement between the card company and the EU's Competition Commission. In 2002 Visa agreed to reduce levels of interchange fees for processing card transactions in return for immunity from legal action. However the exemption ended at the end December and the EC is re-investigating the fee structure.
Read the full text of the US Credit Card Fair Fee Act here:Download the document now 103.6 kb (PDF File)