The National Retail Federation urged the House Judiciary Committee to
support antitrust legislation scheduled for a hearing today that would
require Visa and MasterCard to negotiate with merchants over credit card
processing fees, saying a hidden fee charged by the two card giants is
projected to cost the average U.S. family more than $400 this year.
“If consumers knew how much they are actually
paying for credit cards, most would say they aren’t
worth the price,” NRF Senior Vice President
and General Counsel Mallory Duncan said. “U.S.
consumers are paying an outrageously high annual fee that most don’t
even know about, and the price is going up dramatically every year.”
“There is no transparency and no negotiation
under the current system,” Duncan said. “This
legislation would bring about true competition among the banks that
issue credit cards, giving retailers the opportunity to negotiate terms
on behalf of themselves and their customers that reflect the actual cost
of the services provided.”
According to NRF estimates, the average U.S. family is projected to pay
$427 in hidden credit card interchange fees in 2008. The figure is based
on the $48 billion Visa, MasterCard and their banks are projected to
collect in interchange during 2008 divided by the U.S. Census Bureau’s
estimate of 112.4 million households. The number is up from $378 in
2007, and has nearly tripled from the $159 paid in 2001, the year NRF
began tracking interchange.
Averaging close to 2 percent, interchange is a non-negotiable 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, and the amount is increasing at an average of close to 17 percent
per year. Visa and MasterCard effectively force 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. But interchange is
largely unknown to most consumers because Visa and MasterCard keep
merchants from disclosing it on receipts and don’t
disclose the fee on monthly statements.
A 2006 report by Chicago’s Diamond Management
and Technology Consultants Inc. found that only 13 percent of the
interchange fee is needed for actual transaction processing costs, with
most of the rest going to the cost of card issuers’
rewards programs and profits.
The House Judiciary Committee’s Antitrust
Task Force is scheduled to hold a hearing today on H.R. 5546, the Credit
Card Fair Fee Act of 2008. Sponsored by committee Chairman John Conyers,
D-Mich., the 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
their final offers to binding arbitration by a three-judge panel
appointed by the Department of Justice and Federal Trade Commission.
Duncan testified before the Task Force last summer on how Visa and
MasterCard banks work through each of the two credit card companies to
set interchange rates that all banks agree to charge regardless of which
bank’s name is on a card. In doing so, the
two card companies each operate as illegal price-fixing cartels in
violation of antitrust law, he said. The fees are imposed on merchants
on a take it or leave it basis, and with Visa and MasterCard controlling
more than 80 percent of the credit card market retailers cannot afford
to refuse, 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
