In testimony prepared for delivery today at a hearing of the House Judiciary Committee's Antitrust Task Force, Mallory Duncan, Senior Vice President and General Counsel of the National Retail Federation and Chairman of the Merchants Payments Coalition (MPC), called the collective setting of interchange fees by Visa and MasterCard a violation of federal antitrust laws that costs merchants and their customers more than $36 billion every year.
"The collective setting of interchange fees by Visa and MasterCard represents an on-going antitrust violations and it costs merchants and their customers tens of billions of dollars annually," Duncan said. "These fees are in addition to the late fees, over-the-limit fees and other card fees with which consumers are only too familiar."
The credit card interchange fee is a percentage of each transaction that Visa and MasterCard and their member banks collect from retailers every time a credit or debit card is used to pay for a purchase. The fee varies with type of card, size of merchant, and other factors, but may be up to two percent or more, or about $2 for a $100 purchase. Visa and MasterCard banks collected more than $36 billion in interchange fees last year, up 17 percent from 2005 and 117 percent since 2001.
According to a recent study, the credit card companies and their banks spend only about 13 percent of the interchange fee on actual transaction processing. The rest goes for marketing, profit, and other things like rewards programs. In his testimony, Duncan points out that because so much of the credit card interchange fee is spent on marketing, consumers themselves end up paying for the millions of unwanted and unsolicited credit card offers that flood their mailboxes every year.
Unlike other credit card fees that show up on monthly statements, the credit card interchange fee is hidden. Visa and MasterCard rules make it practically impossible for merchants to tell customers how much they are really paying. Duncan pointed out that since Visa and MasterCard together control at least 80 percent of credit card purchase volume, merchants have no choice but to accept their cards. Because of the anti-competitive behavior of the big card companies and their banks, interchange fees keep going up, acting as what Duncan calls a "hidden sales tax on U.S. commerce, raising both merchant costs and ultimately the price of goods and services sold to consumer."
The MPC, a group of nearly 30 associations representing retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses that accept debit and credit cards are fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition's member associations collectively represent about 2.7 million stores with approximately 50 million employees.