“This bill helps fix the system. Congress has
done its duty.”
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[ WASHINGTON REPORT ]
Coalition of business organizations
applaud credit-card fee conference
“Merchants have known for years that banks’ interchange fees are a hidden tax that is driving up the cost of merchandise and services for American consumers every day.”
A coalition of business organizations has applauded the Federal Reserve Bank of Kansas City for holding a conference in May on credit and debit card interchange fees, saying the rapidly escalating fees amount to a hidden tax on U.S. consumers.
“Merchants have known for years that banks’ interchange fees are a hidden tax that is driving up the cost of merchandise and services for American consumers every day,” Merchants Payments Coalition Chairman Mallory Duncan, senior vice president and general counsel at the National Retail Federation, said. “The Federal Reserve needs to question whether the growing use of cards rather than cash and checks, especially high-interchange debit cards, undermines the Fed’s ability to measure and manage the nation’s money supply. We welcome the fact that the Federal Reserve is concerned enough to hold a conference focusing on this issue, and hope that this is a sign of action to follow. American consumers and the American economy deserve protection.”
Interchange, a fee that is collectively set by Visa and MasterCard’s member banks, is a percentage of each transaction, sometimes accompanied by a flat fee, that banks collect from retailers every time a credit or debit card is used to pay for a purchase, adding up to billions of dollars each year. Visa and MasterCard together make up 90 percent of the U.S. credit and debit card business.
Complex fee structures make it difficult to precisely calculate an average interchange rate, but a recent Morgan Stanley report found that a weighted average for Visa and MasterCard interchange had increased from 1.58 percent in 1998 to 1.75 percent in 2004 (an increase of 10.8 percent) and is forecast to grow to 1.86 percent in 2010. With the growing use of plastic, the dollar volume of interchange collected has grown from $9.4 billion in 1998 to $17.4 billion (an 85-percent increase) and is projected to reach $32.4 billion in 2010.
The latest rise in interchange rates came April 1, when Visa and MasterCard imposed a series of increases. Some of the new rates are as high as 2.9 percent, particularly for new premium cards. In addition to increasing rates, Visa and MasterCard are urging consumers to move to the higher-rate premium cards and away from lower-rate standard cards.
Banks say they charge interchange to make up for bad debt or fraud. With fraud costs consistently decreasing in recent years, however, the costs interchange is intended to cover aren’t nearly as much as the amount charged, and banks already make huge profits from cardholder interest and fees. Moreover, the coalition believes that much of the fraud that interchange is intended to cover is the fault of banks’ poorly designed card programs, not the fault of merchants.
The coalition is looking at a variety of avenues to help U.S. merchants obtain more reasonable interchange rates. Among other steps, the coalition is examining regulations recently adopted or under consideration around the globe: Australia adopted regulations in 2004 restricting interchange rates, the European Union is adopting restrictions and Great Britain is examining the issue as well. U.S. interchange rates are roughly three times Australian levels. |
