Food Marketing Institute Praises Approving Bill to Curb Interchange fee abuses

The Food Marketing Institute (FMI) hailed the House Judiciary Committee (HJC) for approving the Credit Card Fair Fee Act of 2008 in a markup. The committee voted 19-16 in favor of the measure.

"The HJC sent a strong, bipartisan wakeup call to the credit card and financial services industry, which had boasted that this legislation would never go anywhere. Every poison pill amendment was defeated by similar bipartisan margins. We look forward to a full House vote and action on the companion bill in the Senate," said John J. Motley III, FMI senior vice president of government and public affairs.

The legislation would empower merchants to negotiate transaction fees with credit card networks that control at least 20 percent of the market, which today includes only Visa and MasterCard. The U.S. Justice Department Antitrust Division would oversee the negotiations.

Under the current system, retailers can negotiate only a small portion of the fees with their banks. Interchange fees, by far the most costly, have been increasing steadily over the past 15 years. In fact, the total cost of interchange fees has tripled since the beginning of this decade, from $16.6 billion in 2001 to a projected $48.8 billion this year, according to the Merchants Payments Coalition and data from The Nilson Report.

Americans pay among the highest interchange fees in the world. Almost every other developed economy in the world has investigated

credit card transaction fees, particularly interchange, and found them excessive and anti-competitive.

Interchange Fees Far Exceed Actual Transaction Costs

Credit card companies extract an interchange fee averaging about 2 percent on every credit card transaction. It is well documented that current U.S. interchange rates far exceed actual transaction costs. Only 13 percent of the fee covers the cost to process a transaction, according to the financial services industry research firm Diamond Management & Technology Consultants (A New Business for Card Payments, 2006). As much as 44 percent pays for credit card rewards programs.

The fees also help pay for marketing programs, including more than five billion direct mail solicitations per year, according to Synovate, a card industry research firm.

In the end, all consumers pay these fees – whether they pay by plastic, cash or check – because card company rules effectively force retailers to build them into the price of all goods and services.

The legislation would require a committee of merchants and representatives of card companies and banks to negotiate fees for debit and credit card transactions. The negotiators would decide which costs the fees should cover, such as computer processing, communications and system maintenance, and provide financial institutions a reasonable rate of return. Sen. Richard Durbin (D-IL) introduced the Senate companion bill (S. 3086) with co-sponsor Kit Bond (R-MO).

FMI supports this legislation as a leading member of the Merchants Payments Coalition, a group of nearly 100 associations representing retailers, supermarkets, drug stores, convenience stores, fuel stations, online merchants and other businesses that accept debit and credit cards. The MPC is fighting for a more competitive and transparent card system in which interchange fees are based on actual transaction costs. The coalition's member associations collectively represent about 2.7 million stores with about 50 million employees.