Repost: National Retail Federation Senior Vice President and General Counsel Mallory Duncan Duncan discusses his October 8, 2009, testimony before the House Financial Services Committee and explains how the credit card industry is in an “arms race” to raise “swipe” fees.
Click here to listen to NPR Mallory Duncan, Mitch Goldstone radio interview.
Few consumers know, or care, what the difference is between signing their name and using their PIN number when they make a purchase using their debit card. Ah, but merchants do. That simple choice you make can add up to hundreds of millions, if not billions, of dollars in annual fees for merchants. If you sign (and 61% of us do), it can cost a merchant twice as much as using a PIN (which is less vulnerable to fraud). Costco won’t allow their customers to sign for transactions because of the higher fee. Visa and MasterCard dominate the market and they set the fees, which banks collect. Those fees (the ones mentioned above and others including something called an “interchange fee”) have some merchants outraged. So outraged that some have banned together to file the largest antitrust class-action lawsuit in US history.
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.
“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.
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.
“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.”
WayTooHigh.com – The Credit Card Interchange Report Comments:
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.
This is the “perfect storm.”
CNBC Interview with Mallory Duncan, Chairman of the Merchants Payments Coalition and Rhonda Bentz, Vice President, Visa USAMay 9, 2008
Click hBentz, ere to view the CNBC News segment.
Merchants do not have a “wonderful relationship” with Visa and MasterCard. Fact is we are suing them for what could amount to hundreds of billions of dollars in antitrust violations.
There is no transparency for inter interchange fees. Ask any merchant what any single electronic payment transaction was. If Visa and MasterCard want transparency, post the exact charge on every credit card receipt. Posting upwards of one-hundred pages on their website with encrypted interchange fee codes is not transparent.
Consumers do not know that they are being charged nearly 2% in interchange fees.
Interchange fees are illegally set by Visa, MasterCard and its member banks. This is illegal and identical to what the railroads did in the 1800s which forced the creation of the Sherman Antitrust act.
There is no competition. Visa and MasterCard control 80% of the entire electronic payment network. The fees are not competitive, any more than OPEC is competitive with its similar cartel-like pricing.
Click here to read the March 22 article by Alan Wechsler in the Times Union.
[Of note is that the bank’s along with Visa and MasterCard’s proxy, Trish Wexler at their Electronic Payments Coalition advocacy group explained in the article that “Credit card companies say government has no right to get involved.” This probably was the same argument the robber barons voiced in the 1800s when the railroad owners forced farmers to pay whatever they demanded to transport their goods to market. Interchange fees are just as antiquated and were designed a generation ago to process four-party payments over the Visa and MasterCard network, back when we merchants used manual credit card imprinters and carbon copy receipts. As for Ms. Wexler, this is why we have the Sherman Antitrust Act, because Washington listened. The goal of WayTooHigh.com – The Credit Card Interchange Report is to derail the banks’ arrogance.]
“There’s growing retailer resentment over the fees Visa and MasterCard charge for using their cards. More than 40 years after the cards were first introduced, nine states, including New York, along with the federal government, are pushing for laws to control the power credit card companies have over businesses.”
“It’s really out of control,” said Mallory Duncan, senior vice president and general counsel at the National Retail Federation, a trade group in Washington, D.C. “The rates keep going up, the terms are horrendous and it’s a cost that retailers and their customers have to bear.”
“Retailers Welcome Antitrust Legislation Addressing $40 Billion in Hidden Credit Card Fees” (Via NRF News Release)March 6, 2008
[Via Businesswire, March 6, 2008]
WASHINGTON–The National Retail Federation today welcomed the introduction of landmark antitrust legislation that would address hidden MasterCard and Visa fees that cost merchants and their customers more than $40 billion a year.
“This legislation would use the nation’s antitrust laws to rein in the greed of the credit card companies,” NRF Senior Vice President Mallory Duncan said. “With the rapidly increasing use of plastic, credit card companies and their banks are seeing a windfall that is costing U.S. consumers tens of billions of dollars each year. These are fees that most consumers don’t even know they’re paying because Visa, MasterCard have tried to keep them secret. The introduction of this legislation marks the beginning of the end of credit card company rip-offs.”
“Rather than allowing these fees to continue to be set in secret and imposed on a take it or leave it basis, this legislation would require negotiations and allow retailers to seek fair terms and conditions that will ultimately mean a better deal for consumers,” Duncan said. “Consumers are already angry at the way they’ve been treated by credit card companies, and this bill is an important step toward making credit card companies treat both merchants and their customers with respect.”
The Credit Card Fair Fee Act was introduced today by House Judiciary Committee Chairman John Conyers, D-Mich. The bill is the first attempt by Congress to address credit card interchange fees, and is the outcome of a hearing held in July 2007 where Duncan, testifying on behalf of NRF and the Merchants Payments Coalition, argued that interchange practices violate federal antitrust law.
Averaging close to 2 percent, interchange is a fee Visa and MasterCard banks charge merchants every time a credit card or signature debit card is used to pay for a transaction. Visa and MasterCard collected an estimated $42 billion in interchange fees in 2007, an increase of 17 percent over the previous year and 150 percent since 2001.
Interchange is largely unknown to most consumers because Visa and MasterCard don’t disclose the fee on monthly statements and effectively keep merchants from disclosing it on receipts. But Visa and MasterCard effectively require merchants to pass the fees on to consumers by requiring them to be included in the advertised price of items and making cash discounts difficult. The fees amount to about $350 per household each year.
The Conyers bill would require credit card systems possessing “substantial market power” to negotiate with merchants to reach a voluntary agreement on credit card terms and conditions. If an agreement cannot be reached, both sides would be required to submit to binding arbitration by a three-judge panel appointed by the Department of Justice and Federal Trade Commission.
The arbitration proceedings would take place with a limited 60-day discovery period and other statutory deadlines, and the judges would be required to apply a market standard reflecting a perfectly competitive system where neither side had market power. Terms and conditions set by the panel would be in effect for three years, at which time the process would repeat itself. Both sides would receive limited immunity from antitrust laws in order to participate in the process.
The legislation requires that terms and conditions set under the process be available to any merchant regardless of size, industry or location. Individual merchants or groups of merchants would remain free to negotiate voluntary arrangements with credit card companies and their banks.
NRF is leading retailers’ fight against soaring interchange costs. During last summer’s testimony before the Judiciary Committee’s Antitrust Task Force, Duncan explained to lawmakers how Visa and its member banks come together to set interchange rates that all banks agree to charge regardless of which bank’s name is on a card. MasterCard follows a different procedure that also results in all its banks agreeing to charge the same. In either case, the two card associations each operate as illegal price-fixing cartels in violation of antitrust law, he said. With Visa and MasterCard together controlling at more than 80 percent of credit card purchase volume, retailers cannot afford to refuse the cards, he said.
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 companies, more than 25 million employees – about one in five American workers – and 2007 sales of $4.5 trillion. As the industry umbrella group, NRF also represents over 100 state, national and international retail associations. www.nrf.com