WASHINGTON – Visa and MasterCard, dominated by the big banks, stepped out into the open to combat new standards on interchange fees which had been largely led so far by community banks and credit unions.
Top executives, who had stayed in the shadows during the three-year fight over interchange controls, denounced amendments to the Senate’s bank bill aimed at cutting the lucrative interchange fees the two networks funnel to thousands of banks and credit unions. Visa CEO Joseph Saunders said the interchange amendments will have unintended consequences by forcing banks and credit unions to increase fees elsewhere to make up for lost interchange revenue. “The amendment is a shrewd but cynical approach to getting American consumers to pay big-box merchants' fair share for the benefits these merchants get from electronic payments. There's a price tag on this bill, and it will be paid by the American consumer,” said Noah Hanft, MasterCard general counsel.
The credit card giants, owned and created by the nation’s banks and credit unions, are controlled by a handful of big banks that have stayed in the background so far while small banks and credit unions have carried the fight for the group, known as the Electronic Payments Coalition. The biggest owners of Visa are JP Morgan Chase, Bank of America, Citigroup, National City Corp. and Wells Fargo, while Citi, JP Morgan and HSBC are among the biggest owners of MasterCard, according to proxy materials filed with the Securities and Exchange Commission.
Credit union and bank lobbyists were working over the weekend on a strategy to minimize or eliminate the interchange amendment from the Senate bill as leaders of the Senate and House were planning to meet as early as Monday to begin hashing out differences between separate versions of the bank bill passed by both chambers. Credit union lobbyists were hoping that House leaders, who did not include the interchange amendment in their version, will agree to strike the language from the combined bill.
The focus is on Rep. Barney Frank, the Massachusetts Democrat who shepherded the bank reform bill through the House without the interchange amendment. “We believe Chairman Frank is very pragmatic when it comes to business-to-business contractual issues like interchange,” NAFCU’s chief lobbyist Dan Berger. “There is a recognition that the big box stores and giant retailers are making money off the backs of consumers and small institutions on Main Street so there is an opportunity for fixes.”
The interchange amendment will do several things. It will direct the Federal Reserve to study interchange fees on debit cards charged consumers by big banks to ensure they are fair. And it will allow retailers for the first time to encourage shoppers to use cash instead of debit to save interchange fees or to use lower cost cards. The Visa and MasterCard networks bar those practices and fine retailers who do so.
In approving the language senators were convinced they could minimize the harm to credit unions and community banks by exempting them from the Federal Reserve review. The problem is, if big banks are forced to lower their interchange fees then so to will smaller players such as credit unions and banks in order to keep their cards competitive.
The stakes are enormous, with as much as $48 billion of interchange fees paid on card transactions as recently as 2008; about $15 billion of it on debit cards. An estimated 10% of that, almost $5 billion, is believed to have gone to credit unions.
The interchange amendment is one of several provisions that will be fought over in the Senate bill, which would also set a new regulatory scheme for financial derivatives, create new oversight for so-called “too-big-to-fail” financial institutions, and set up a consumer financial protection agency. But major battles will be fought over language in the bill that would require investment banks to spin off their derivative trading desks into separate entities and over language that isn’t in the bill yet that would bar banks from proprietary trading – that is, trading for their own accounts alongside customers.
