“Credit-Card Fees Targeted by Retailers Who Say Banks Overcharge ” (via Bloomberg)

Reposted – Bloomberg, reporter Jonathan D. Salant

Nov. 29 (Bloomberg) — The subprime mortgage crisis is giving department and convenience stores and gas stations a new argument in asking Congress for power to negotiate the fees banks charge them to process credit-card transactions.

Retailers such as Target Corp. say banks make so much money from the fees that they give credit cards to people who can’t pay their debts, just as they provided mortgages to homeowners who can’t afford them.

“It’s another version of subprime lending,” said Mallory Duncan, chairman of the Merchants Payment Coalition representing trade groups for 2.7 million gas stations, drug stores, supermarkets and other retailers. “The system should be fixed before we are in a position of having to bail out more banks.”

Duncan, a registered lobbyist, is senior vice president and general counsel of the National Retail Federation, whose board members include Delray Beach, Florida-based Office Depot Inc., Cincinnati-based Macy’s Inc., and Plano, Texas-based J.C. Penney Co.

The merchants want an antitrust exemption so they can band together to negotiate with banks over the so-called interchange fee, usually between 1 and 2 percent of the purchase price, that a retailer’s bank pays the cardholder’s bank each time a customer swipes a credit card. The retailer’s bank then collects the fee from the merchant. Consumers don’t see the charge, which merchants say is built into their prices.

‘Significant Issue’

“This is a significant issue for us, and a very high cost for us,” said Eric Hausman, a spokesman for Minneapolis-based Target, the second-largest U.S. discount retailer. “We do expect the next Congress” to look into the issue, he said.

Retailers say the fees should be part of the discussion when Congress returns in January and looks at overhauling bank rules. So far, the merchants have pushed their proposal without success. The House Judiciary Committee approved it in July, though it hasn’t reached the full House or Senate.

Banking groups and the credit-card companies say the interchange fees ensure that retailers get paid even if cardholders default. If the fees were onerous, merchants wouldn’t be so eager to take credit cards, they say.

“You have a choice of whether or not you want to accept plastic,” said Jason Kratovil, vice president for congressional affairs for the Independent Community Bankers of America, the Washington-based trade group for smaller banks. “If the pros outweigh the cons, you do it. It makes a real pithy sound bite to make it that these big banks are out there to gouge consumers.”

Representatives at Bentonville, Arkansas-based Wal-Mart Stores Inc. and Kohl’s Corp. in Menomonee Falls, Wisconsin, had no immediate comment. Spokesmen for Macy’s, J.C. Penney’s, Office Depot, Hoffman Estates, and Framingham-Massachusetts-based TJX Cos. didn’t return phone calls yesterday.

Credit-Card Issuers

Among the largest credit-card issuers is New York-based Citigroup Inc., which this week received a U.S. government rescue package, including $20 million in cash. Two more credit-card issuers, Bank of America Corp., based in Charlotte, North Carolina, and New York-based JPMorgan Chase & Co., were among nine financial institutions receiving $125 billion from the Treasury in October.

“I am connecting the dots with the credit-card industry and the mortgage industry,” said Lyle Beckwith, a senior vice president with the Alexandria, Virginia-based National Association of Convenience Stores.

The banks say credit-card fees cover operating costs, protect banks against default and fraud, and allow them to offer cards with no annual fees and rewards. The charges vary from bank to bank and depend in part on whether the card includes cash rewards or other benefits.

Without the ability to recoup costs, smaller banks wouldn’t be able to issue cards and compete with the larger institutions, said Paul Weston, president of TCM Bank NA in Tampa, Florida.

Fewer Accounts

“You’d see a reduction in the number of accounts,” Weston said. “You’d dial back the features on the account. Some banks would reintroduce fees.”

Financial institutions and their trade associations formed the Electronic Payments Coalition to oppose the legislation, arguing that merchants are simply trying to reduce costs.

“Like any business, they want to find ways to lower their cost of doing business,” said Trish Wexler, a spokeswoman for the coalition, whose members include New York-based American Express Co., Citigroup and San Francisco-based Visa Inc. “We believe that going to Congress and asking for consumers and for the financial institutions to pay is the wrong way.”

Beckwith, whose organization’s members include Dallas-based 7-Eleven Inc. and San Ramon, California-based Chevron Corp., said banks got away from the business model of determining how much a house was worth and how much a homeowner could afford.

“The credit-card business is run by the same banks the exact same way,” Beckwith said. “They’re not in the business of making loans based on the ability to repay, they’re sending out cards based on a business model of making money off the interchange fee.”

[source: Bloomberg]

“Old Foes Unite to Keep Charging Credit Card Fees to Merchants” (via The Hill)

WayTooHigh.com – The Credit Card Interchange Report Comments:

Even financial interpreter Jim Cramer is in for a grueling week as Visa and MasterCard readies for what both companies warn might lead to their “insolvency” [according to their SEC filing statements].For an update on Thursday’s planned Capital Hill combat against the giant credit card associations and its member banks, click here to read Jessica Holzer’s May 12^th The Hill column.   

You know there are splinters in Visa and MasterCard’s haywired argument when lobbyists for the banks and the credit unions join forces; while they are gasping, we are ready to further illuminate the issues. It has been more than three-years since launching the class-action complaint to arrest this $40 billion annual hidden tax on merchants and consumers.

Let us not forgot that interchange fees were designed decades ago to cover the cost of a four-party electronic payment network – back when we used manual credit card imprinters and mailed in thick bundles of carbon copy credit card receipts to clear the payments. Back then, it took days to transfer funds, today it is instant and efficient.

Today’s efficiencies have done away with the antiquated payment process, yet the fees are higher than ever. Why the disparity as interchange rates abroad are a fraction of the nearly 2.0% tax charged in the U.S.?

 

 

This is the “perfect storm.” 

We are ready to explain why interchange fees are obsolete, illegal and anti-competitive. Even the banking industry’s shareholders are in for another bombshell so audible and eclipsing that the impact from their executive’s round of previously misfortunate decisions and billions in prior writeoffs may be petite in comparison. A trial by jury allows fort trebled damages.

When was the last time you heard the U.S. Federal Reserve explain that interchange fees “dampen innovation” for check writing? Never: there are no interchange fees to clear checks. Likewise, why hasn’t the Fed explained that merchants “derive huge benefits” from accepting paper checks for payment? Again, there are no fees to clear a check and if it is so significant a cost, why hasn’t the banking industry demanded interchange fees for that payment form?

The banking lobbyists are ready and so are we, but our story is being told by regular shop owners to personalize the issue. 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. The American public is fed up with the banking industry’s mismanagement and audacity; the days of cartel-like price-fixing will vanish, just as did those bulky manual credit card imprinters also disappear.

“Visa’s IPOIs Worth a Close Reading” (via WSJ)

Understanding the Word “Insolvency” Is Crystal Clear

Visa Inc. Files 10-K Annual Report, Amends S-1 Registration

  

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“MasterCard Statement on the Credit Card Fair Fee Act of 2008” (via MasterCard press release)

[Click here to view MasterCard Worldwide press release.  Reprinted in its entirety].

Purchase, NY, March 06, 2008 – The electronic payments system benefits merchants and consumers because it is a highly efficient and secure way to increase sales and consumer satisfaction. The system was developed in the highly competitive marketplace of merchants, banks, payment networks and consumers. This legislation is an attempt by merchants and the Merchants Payments Coalition to put in place price controls, which will harm competition and the card products and services offered to consumers.

MasterCard believes there is no need for government intervention, and that it would be inappropriate for the U.S. government to set prices and negotiate the terms of contracts for private commercial entities. Such policy decisions in the past have proven to be unworkable, unpopular and detrimental to the free market economy. There is no evidence that demonstrates that such price controls will result in savings passed along to consumers. To the contrary, we believe such moves negatively impact consumer choice.

We will continue to work with our customers and other industry organizations, like the Electronic Payments Coalition, American Bankers Association, National Association of Federal Credit Unions, Independent Community Bankers of America, and the American Financial Services Association, to help members of Congress enhance their understanding of how interchange brings benefits to millions of consumers and merchants around the world.

For more information on Interchange, go to: http://www.mastercard.com/us/company/en/ourcompany/interchange.html

The Battle Against Visa and MasterCard is Poised to Get Very Loud

According to American Banker reporter Stacy Kaper (Thurs, Feb 21) “Interchange Limits Heat Up on Hill; Conyers, Durbin draft bills giving retailers more sway over fees.”

Key points extracted from the American Banker article, include:

• House and Senate Judiciary committee leaders are drafting legislation that would limit interchange fees.
• The credit card industry is already under siege by lawmakers who want to rein in various practices, but a crackdown on interchange fees would be a first at the federal level and could threaten an estimated $36 billion in annual revenue for the industry.
• House Judiciary Committee Chairman John Conyers is expected to offer an interchange bill with Rep. Chris Cannon, R-Utah.
• According to a draft of the bill, it would create a three-member board of lawyers appointed by the Federal Trade Commission and the Justice Department to regulate interchange rates.
• Senate leaders are considering offering a similar measure
• The legislative push is the result of work by the Merchant Payment Coalition — a retailers’ lobbying group fighting to reduce the merchant discount fees from which interchange fees are derived.
• Because “there is no competition between the thousands of rival banks participating in a given electronic payment system regarding these fees and rules, merchants are denied access to the electronic payment system on rates and terms that would have been negotiated in a perfectly competitive marketplace,” the draft bill says.
• A sweeping credit card reform bill introduced this month by House Financial Services Committee leaders Barney Frank and Carolyn Maloney would require the Federal Reserve Board to make annual reports to Congress on how much banks earn from merchant fees.

 

 

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