Merchants Welcome Congressional Concern Re: Credit Card Interchange

In House Judiciary Committee Chairman John Conyers' (D-MI) opening statement, he said, "while I come into the hearing with an open mind, I do believe the burden of proof lies with the credit card companies to reassure Congress that increasing interchange fees are not harming merchants and ultimately consumers."

Duncan, Food Marketing Institute chairman and president and CEO of K-VA-T Food Stores, Inc., Steve Smith, and, consumer witnesses told the panel that credit card companies and their member banks illegally conspire to charge merchants and their customers overly high fees for operating the system. The Committee expressed skepticism that card interchange fee rates are being set fairly and questioned whether the situation would require government intervention.

"Are interchange fees imposing an unfair cost on the consumer?" asked Chairman Conyers. "Are interchange fees increasing at too rapid a rate, and why? And finally, are our friendly credit companies engaging in anticompetitive behavior." At the end of the hearing Conyers said, "It doesn't look so good for the credit card companies."

The credit card interchange fee is a percentage of each transaction that Visa and MasterCard and their member banks collect from retailers every time a credit or debit card is used to pay for a purchase. The fee varies with type of card, size of merchant, and other factors, but may be up to two percent or more, or about $2 for a $100 purchase. According to MPC, the fees are indirectly paid by consumers, unaware the fees are incorporated into the prices of products they buy.

Visa and MasterCard control 80 percent of credit card purchase volume. Each company works with their member banks to collectively set the price of interchange fees. Because banks benefit from higher interchange fees, Visa and MasterCard compete to charge the highest rate.

Consumer advocate Edmund Mierzwinski, consumer program director for the U.S. Public Interest Research Group, testified that credit card interchange cost merchants and consumers $36 billion in 2006. Interchange fees are up 17 percent from 2005 and 117 percent since 2001.

Congressman Ric Keller (R-FL) stated, "they [the credit card companies] have no good explanation of why we are seeing these dramatic increase[s] in interchange fees. I look at the merchants and they have a very good explanation."

Unlike other credit card fees that show up on monthly statements, the credit card interchange fee is hidden. Visa and MasterCard rules make it practically impossible for merchants to tell customers how much they are really paying.

"Why in the world should this committee permit a gag rule to be in place keeping the public from knowing what they're being charged, especially when there's more profit in a gallon of gas for the credit card companies than a gas station?" asked Congressman Darrell Issa (R-CA) said in reference to Visa last year saying it would disclose full rules to merchants but only if they signed a Non-Disclosure Agreement.

Mierzwinski suggested making the interchange policies more transparent. "The first step is sunlight, the best disinfectant," he said.