Lobbyist Tries To Explain Higher Card Rates on the Thursday, October 29th 6pm segment of The John and Ken KFI-AM 640 Los Angeles radio show.
Alternative link to listen, click here
WASHINGTON–(BUSINESS WIRE)–The National Retail Federation today warned Congress that credit card companies are in an “arms race” to increase the $48 billion in “swipe” fees paid by merchants and their customers each year, and urged passage of legislation that would put rules governing the fees under the jurisdiction of the Federal Trade Commission.
“There is an arms race to create cards with higher fees and more bells and whistles,” NRF Senior Vice President and General Counsel Mallory Duncan said. “The market checks that would normally exist to curb this escalation in fees are diminished because the card companies know that every merchant is required to take these expensive new cards or lose their ability to accept any cards. The Welch-Shuster bill would allow the most expensive cards to be refused, and while we expect that few merchants would actually refuse cards if this were passed, it would make the card companies think before they reflexively introduce cards with higher fees.”
“Most consumers don’t know it, but every time they swipe a rewards card with its miles and concierge services, they are driving up the price of everything they buy even higher,” Duncan said. “This particularly hurts less-privileged Americans who don’t have rewards cards or can’t get cards at all because Visa and MasterCard rules effectively require that everyone pay the credit card price even if they are paying with cash, check, debit card or even food stamps.”
“There is no regulator that reviews whether credit card company rules are unfair, deceptive or anticompetitive,” Duncan said. “This legislation would deal with this absence of oversight by directing the Federal Trade Commission to review card company rules and prohibit practices that meet that description. That is the minimum level of protection that this market needs to begin to function properly.”
Duncan testified before the House Financial Services Committee today during a hearing on H.R. 2382, the Credit Card Interchange Act of 2009, sponsored by Representative Peter Welch, D-Vt., and co-sponsored by Representative Bill Shuster, R-Pa. The bill would require credit card companies to disclose interchange rates, terms and conditions, and give the Federal Trade Commission authority to review interchange and prohibit any practices that violate consumer protection or anti-competition laws. Merchants would be allowed to give cash discounts and set minimum credit card purchase amounts, and could choose which credit cards to accept.
Interchange is a fee averaging 2 percent that Visa and MasterCard banks charge merchants each time one of their credit cards is swiped to pay for a purchase. But Duncan explained to the committee that the rate can range from as low as about 1.5 percent for an ordinary card to 3 percent or more for “gold” and “platinum” cards that offer rewards like travel miles or concierge services. In recent years, card companies have created an escalating series of rewards cards – each carrying more rewards but also higher fees – and “upgraded” millions of consumers. The higher-fee cards can’t be turned down by merchants because of Visa and MasterCard’s “Honor All Cards” rule. The practice, along with marketing that has pushed the use of plastic and introduced cards into new areas like taxis, has helped triple interchange revenue from the $16 billion collected when NRF began tracking the fees in 2001 to the $48 billion collected last year.
Visa and MasterCard rules effectively force merchants to pass the fees on to consumers by requiring them to be included in the advertised price of merchandise and making cash discounts difficult. The result is that the average household paid an estimated $427 in higher prices last year, up from $159 in 2001.
Merchants have long sought to offer cash discounts, but Duncan said an amendment to this spring’s credit card reform bill that would have blocked credit card companies from interfering with that ability was met with “howls of protest’ from the card industry and was not included in the final measure.
The National Retail Federation is the world’s largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry’s key trading partners of retail goods and services. NRF represents an industry with more than 1.6 million U.S. retail establishments, more than 24 million employees – about one in five American workers – and 2008 sales of $4.6 trillion. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations. www.nrf.com.
WASHINGTON – Americans for Financial Reform, a group of about 200 national and state organizations that support reform to our nation’s current financial sector, announced its support this week to reform credit card industry practices.
The group released a position paper that outlines its members concerns and support for legislative action that would bring transparency and fairness to a broken system — particularly hidden “swipe fees” (interchange fees) “paid by all Americans, regardless of whether they use credit, debit, checks or cash.”
The group writes:
“Swipe fees have grown at a staggering pace — from about $16 billion in 2001 to about $48 billion in 2008. This is a clear sign of a broken market. Not only do these huge fees injure consumers by inflating the cost of goods and services, they create incentives for banks to view credit and debit cards as fee engines. It is not coincidence that consumer-side fees such as late fees, over-limit fees, overdraft fees and others have seen rapid increases during the last several years, just as swipe fees have exploded. Seeing the potential income from fees has made banks’ business models develop such that they often view their customers as fee-generating machines. These business models have dictated the proliferation of cards and incentives for increased card use without appropriate attention to the risks that consumers might not have the ability to repay the debts they incur on these cards.
“And unfortunately, those credit card swipe fees continue to accelerate, because there is nothing — no marketplace or competitive force — to restrain Visa and MasterCard from charging consumers and merchants more, even though technological advances should have reduced the cost of providing the services. So, not surprisingly, these fees have been skyrocketing.
“There are two essential elements to a competitive marketplace: information and choice. Accurate and transparent information is necessary for consumers to make accurate choices. When information is readily available consumers can make choices, effectively compelling firms to compete for their purchases. And choice is a necessary element too. Absent choice, the discipline of the market will be lost. The credit card market lacks both choice and adequate information. From a consumer’s perspective, it lacks choice because it is an oligopolistic market in which a small set of card issuers dominate the market and establish a set of hidden practices that increase consumer costs.
“Markets don’t work when there are hidden fees and rules — and no one hides fees and rules better than the credit card companies. Credit card markets lack the information necessary for both consumers and merchants to make informed choices. For merchants, the markets lack adequate information because the associations prevent merchants from accurately informing consumers of the costs of credit card acceptance or attempting to direct them to more efficient and lower priced payment mechanisms. In fact, merchants have no alternative but to accept the card associations’ cards even when the associations significantly increase prices.
“Credit card industry practices must be reformed in order to deal with these market failures and the resulting injury to consumers. Transparency and market forces are needed to check the growth of unjustifiably high swipe fees. Consumers have a right to know the amount of the swipe fees charged in conjunction with their transactions. Merchants too must be given information about the type of card that they are receiving at the point of sale and the corresponding interchange fees. In addition, the Visa and MasterCard operating rules that dictate how the credit and debit card systems operate must be provided to a regulator that, in turn, makes those materials public for everyone to see and analyze.
“Visa and MasterCard rules that are unfair, deceptive, or anticompetitive must also be abolished. These practices harm consumers by increasing the cost of goods and services and by preventing retailers from offering or encouraging the use of lower cost payment options. This process should start with providing a strong regulatory agency, such as the Federal Trade Commission (or Consumer Financial Protection Agency) the power to review the Visa and MasterCard rules and prohibit any it finds to violate these tenets that govern transactions throughout our economy. Additionally, specific, anticompetitive rules must be overturned immediately to allow merchants to do the following:
“A large set of organizations are working together to advance our common interest in an accountable, transparent and secure financial system, and to accomplish our shared policy goals. Because the organizations involved and the issues addressed are diverse, not every organization works on or has a policy position on every specific issue. We are unanimous in our call for change to repair our nation’s broken financial system, establish integrity in the financial markets, and facilitate productive economic activity that benefits all segments of our communities.”
Electronic Payments Coalition, the group funded by Visa Inc., MasterCard Worldwide and the major banks and credit card issuers (payment card networks and financial services companies) just issued this press release. Click here.
We disagree with it, including this key point: The problem with cash discounts is that they don’t allow for different prices depending on the type of payment card used. There are about one-hundred separate merchant interchange fees and it is nearly impossible to know what the cost is for each transaction. In other words, they prevent Visa and MasterCard from competing over the cost of acceptance. The same principle applies to the honor-all-cards rules, which prevent merchants from exercising a preference for lower-cost cards, thereby preventing competitive forces from placing downward pressure on interchange fees. Not to mention the condescending, patronizing attitude that credit card companies know better than merchants how to treat a merchant’s customers.
Merchants Can Already Discount for Cash, But Don’t – So What Would H.R. 2382 Really Do?
WASHINGTON, Oct. 7 /PRNewswire/ — In advance of the October 8th hearing in the House Financial Services Committee on H.R. 2382, “The Credit Card Interchange Fees Act,” sponsored by Rep. Peter Welch (D-VT), the Electronic Payments Coalition has issued the following statement:
“H.R. 2382 is one of the most egregious assaults on consumer protection that this country has seen in some time. Disguised as a measure to allow for cash discounts – something that is already allowed by federal law and by all card network contracts – the bill would instead open up the door for bait-and-switch advertising schemes, charging additional checkout fees at the register, and discrimination against certain card holders. The bill is chock full of provisions that mean one thing: consumers will pay more so merchants can pay less. Bottom line – retailers don’t want to pay their fair share for a service that brings them more sales and higher profits – and want their customers to pick up the tab instead.”
The Electronic Payments Coalition released today a document detailing the anti-consumer protection measures detailed in H.R. 2382. This document follows this statement.
Rep. Peter Welch’s H.R. 2382 – “The Credit Card Interchange Fees Act” – would…
Leave consumers vulnerable and unprotected against deceptive, bait-and-switch advertising.
Rep. Welch’s legislation would eliminate important consumer protections on how merchants are allowed to advertise their prices – restrictions that are in place expressly to protect consumers. This would allow retailers to promise one low price, then charge more – potentially a lot more – when the customer reaches the cash register. Consumers would be left unprotected, forced to pay the demanded price regardless of what was advertised – and retailers would profit unjustly from their dishonest schemes.
Leave consumers stranded at the checkout counter.
Imagine getting to the front of a long line at the grocery store, only to discover that the store doesn’t accept your alma mater’s credit card. Or they won’t accept the card that donates a few cents of every purchase to your favorite charity. This legislation allows merchants to pick and choose which cards they will accept – and which cards they won’t – with no advance warning to their customers.
Dramatically reduce – or eliminate – the card rewards programs that are used by 80% of American households.
H.R. 2382 would prohibit a slightly higher interchange rate for rewards cards – cards that are traditionally used by customers who are proven to spend more when they shop, in turn providing greater value to merchants. Unfortunately, merchants don’t want to pay for this benefit – and the result would be far fewer rewards for American consumers who value such programs. In fact, similar regulation in Australia has resulted in a 23% reduction in the value of rewards programs for consumers.”
Force businesses to disclose highly confidential financial information to the public and to their competitors.
H.R. 2382 would require every contract, rate agreement, and rule on merchant discount rates to be submitted to the Federal Reserve, which would then be responsible for publishing every bit of it. This would involve literally millions of documents, most containing highly sensitive financial information. The chaos that would result from the sheer volume of contracts – not to mention the compromised financial information – would be incredibly harmful to retailers and to financial institutions.
Falsely characterize interchange as a consumer fee, by requiring that it be disclosed on consumer statements.
It’s simple: consumers don’t pay for the cost of card acceptance. It’s a cost of doing business for merchants that accept cards. Despite this clear distinction, H.R. 2382 would force card issuers to print the amount of interchange, as well as the total amount various merchants paid for each charge – an amount that varies depending on what each merchant negotiated – on consumer’s credit or debit card statements. This is nonsensical, unrealistic, and would ultimately confuse consumers and the financial decisions they make.
About Electronic Payments Coalition
The Electronic Payments Coalition (EPC) includes credit unions, banks, and payment card networks that move electronic payments quickly and securely between millions of merchants and millions of consumers across the globe. EPC’s goal is to protect the value, innovation, convenience and competition in today’s growing electronic payments system. EPC educates policymakers, consumers, and the media on the system’s role economic growth, and the importance of protecting consumer choice and stability for the continued growth of global commerce. http://electronicpaymentscoalition.org/
SOURCE Electronic Payments Coalition