WASHINGTON - Credit unions were lobbying last week against a bill to open the market for card interchange fees to more competition, saying the proposal would amount to price caps on this lucrative source of revenue.
The bill is heavily supported by retailers who say the $36-billion market for interchange fees is controlled by MasterCard and Visa, which control 80% of the market. It would allow large merchants, like a Wal-Mart, to negotiate their own interchange fees directly with the card companies and create a three-person government panel to approve the fees.
But credit unions, which earned more than $3 billion in interchange fees last year, insist that the proposal would pose the government as the rate-setters and leave smaller entities, including credit unions, at the mercy of larger institutions and merchants in the market. “The argument that it is a negotiation is somewhat of a red herring,” said Dillon Shea, a senior lobbyist for NAFCU, which has joined CUNA, the American Bankers Association, the Independent Community Bankers Association, MasterCard and Visa in an Electronic Payments Coalition to fight the proposal.
A rival group created by retailers, insists that interchange fees–generally 2% of a card transaction–continue to add to the price of their goods and services as price go up–even though the costs of electronic transactions continues to decline, costing consumers millions of dollars in additional expense.
Credit unions consider the fees as an important source of revenue. The fees are split three ways, between the credit unions and banks that issue the card; the merchant acquirer, which has the retailer’s account; and the card companies, MasterCard and Visa, which are owned mostly by the credit unions and banks. American Express and Discover earn a lesser amount of the fees because of market share.
The effort to rein in interchange fees comes as other sources of CU income are also coming under scrutiny, including fees for overdraft protection, known as bounce protection, and certain credit card fee practices.
The bid on interchange fees is being led by a broad-based group of retailers, petroleum marketers and grocers calling themselves the Merchants Payments Coalition.
Many of the constituents have been involved in suits challenging the rate-setting on fees, claiming that MasterCard and Visa violate antitrust laws by colluding on the rates, which are almost identical for the two separate card companies.
The retailers say that interchange fees have more than doubled, while the costs of conducting electronic transactions has gone down since 2001.
The rate setting by the two cards giants has come under attack in other countries, with Canada and Australia creating a government regulatory structure in recent years, and the European Union citing MasterCard last year for violating its antitrust regulations and ordering the company to cut its fees.
A credit union executive representing NAFCU told lawmakers during last week’s hearing before the House Judiciary Committee that interchange fees are an important revenue source for credit unions and any reduction or cap could have dire consequences for those credit unions that are narrowly profitable.
