Catalogers have long wanted relief from the fees charged by credit card issuers. But a bill introduced in Congress in March may not be the best way to get it.
The so-called Credit Card Fair Fee Act (HR 5546) ) would require that interchange fees — charges paid by merchants to Visa and MasterCard banks for handling credit card transactions — be negotiated. But industry sources fear the law will tilt things in favor of large retailers like Wal-Mart.
“It’s absolutely unworkable,” says Tim Litle, chairman of payment processor Litle & Co. “How’s a tiny little catalog going to negotiate everything? It won’t work unless an association negotiates on behalf of a whole class of merchants.”
Litle argues that catalog merchants need relief. They generally pay a higher rate than brick-and-mortar retailers.
Credit issuers claim that this is due to the higher chargeback rates experienced by card-not-present merchants. But Litle claims that banks “do not eat those chargebacks” — merchants do — and that their impact is less than that of those kicked back at the store level.
The initial purpose of interchange charges was to compensate banks for “interest forgone,” or money not collected during the grace period provided to consumers. But there are now “probably 350 different interchange rates,” and they are a higher percentage, Litle adds.
Retailers appear to agree with him that the rates, now averaging 2%, are over the top.
“This legislation would use the nation’s antitrust laws to rein in the greed of the credit card companies,” said Mallory Duncan, senior vice president of the National Retail Federation (NRF), in a statement.
He added that these “credit card company rip-offs” are costing consumers “tens of billions of dollars each year.”
The bill, jointly introduced by House Judiciary Committee Chairman John Conyers (D-MI) and Rep. Chris Cannon (R-UT), applies to both credit card and debit card transactions.
It would require that credit companies negotiate with merchants to reach agreements on rates and conditions. If a deal cannot be reached, the dispute would be subject to binding arbitration by a panel of three appointed by the Department of Justice and the Federal Trade Commission.
According to the Merchants Payments Coalition (MPC), credit card companies collected $36 billion in interchange fees in 2006 and an estimated $42 billion in 2007. Ultimately the fees are passed along to consumers, meaning the average household pays about $300 annually.
“These are fees that most consumers don’t even know they’re paying because Visa, MasterCard have tried to keep them secret,” Duncan added.
Credit card companies use such interchange fees to finance direct mail and loyalty rewards programs, according a report MPC submitted to Congress. It says credit card companies mailed 8 billion offers for credit cards to consumers in 2006.
Litle agrees that merchants are “paying for those free airline miles.”
Rep. Cannon said in a statement that “the current system of setting fees that merchants pay for credit card transactions is anti-competitive and secretive. This bill does not set prices. Instead, it would require that fees be set in a transparent manner so other companies can compete for business and consumers would not pay artificially high rates.”