Click here to read the May 14th ConsumerAffairs.com article by Martin Bosworth. Reprinted below.
Retailers, bankers gear up for discussion of ‘Fair Fee Act’
By Martin Bosworth, May 14, ConsumerAffairs.com
The House Judiciary Committee has scheduled hearings on legislation that would rein in credit card interchange fees tomorrow. The hearing will be preceded by a frenzy of lobbying as retailers square off against the financial industry over the hidden fees that retailers pay to process credit card transactions.
The hearing will discuss the “Credit Card Fair Fee Act of 2008,”introduced in March by Judiciary Committee chairman John Conyers (D-MI). The proposed legislation would require lenders and credit card companies to negotiate with retailers on terms for interchange fees, and for the Federal Trade Commission and the Justice Department to step in and arbitrate if an agreement could not be reached.
Currently, interchange fees are set by credit card companies such as Visa and Mastercard, and the payments are often high enough to wipe out a store’s profit on any sold item, forcing them to raise prices for all customers just to recoup their losses. A coalition of retailers banded together to sue both companies and many major banks for what they claim was collusion in setting interchange fee profits
Photo store [and ScanMyPhotos.com co-]owner Mitch Goldstone, one of the lead advocates of eliminating interchange fees, said that “We are ready to explain why interchange fees are obsolete, illegal and anti-competitive.” In a posting on his blog, WayTooHigh.Com, Goldstone said that “After years of toil, merchants and consumers are at the cusp of forcing the demise of these unbridled and unnecessary interchange fees on American’s and our neighbors around the world.”
Both the retailer litigation and threats of proposed new regulations have conspired to bring together credit unions and national banks–traditionally old foes–to oppose the legislation. The Hill reported that both sides plan to bombard Capitol Hill with advertising urging Congress to oppose legislation restricting interchange fees.
Retailers and interchange fee opponents hope to take advantage of the zeitgeist surrounding credit card, as several members of both the House and Senate have introduced new legislation that would curb the most abusive practices of the industry, and have held multiple hearings decrying the more unscrupulous tactics of the financial industry against its customers.
Even with continuing healthy profits for both credit card companies and highly successful IPOs, both Visa and Mastercard are rumored to fear a “perfect storm” combining the elimination of the interchange fees, lower card usage and higher delinquencies due to the economic climate, and restriction of many of the fees levied on consumers.
Industry analysts have observed that one of the principal motives for both Visa and Mastercard to go public was to build up “war chests” for funds to recover losses if the interchange fee litigation should go against them–and to shift the bulk of the risk to shareholders and investors.