WASHINGTON – Proponents of a bill to open the process for setting credit card interchange fees insisted during congressional hearings yesterday the proposal would not set or regulate rates, but merely would allow merchants to negotiate the fees with the card companies and issuers.
But representatives from Visa and MasterCard and credit unions insisted the proposal amounts to government regulation and price caps, endangering lucrative revenues earned from electronic commerce.
John Blum, chief operating officer for Chartway FCU testifying on behalf of NAFCU before the House Judiciary Committee, said the proposed system would leave smaller entities, such as credit unions, at the mercy of larger banks and retailers in the rate-setting environment.
The proposal would allow retailers to enter into bilateral negotiations with Visa and MasterCard and their acquiring banks to set their own interchange fees, in contrast to the current system under which the fees are set by Visa and MasterCard, who dominate 75% of the electronic transactions market.
“From a credit union perspective, this allows for unintended consequences that are not necessarily visible in this bill,” said Blum. He wondered whether the negotiated fee system would result in lower fees passed on to consumers, where credit unions and other institutions would find revenue to cover credit card fraud losses, as well as costs for overnight settlements and back-end processing.
Representatives of Visa and MasterCard insisted the system currently is open to negotiation and that they do not set interchange fees in tandem.
But representatives of the merchants’ coalition said Visa and MasterCard have dragged their feet for years in disclosing the rate system and only started making it public in recent years after a firestorm was created. They also insisted that the interchange fees charged by both card giants were very similar, if not identical.
The stakes in the fight are huge with interchange fees paid by American consumers amounting to almost $42 billion a year, according to the latest figures. The fees are divided among the card companies, the merchant acquiring banks, and credit union and bank issuers of the cards. Credit unions earned an estimated $3 billion in interchange fees last year.
The bill, which is favored by congressional Democrats, is not expected to go very far this year, but is expected to be reintroduced in the next Congress when the Democrats are expected to have a wider majority.
