WASHINGTON — As the Senate struggled with a massive regulatory reform bill, a key House committee chairman tried to jump-start debate on a much narrower banking issue: interchange fees.
House Judiciary Committee Chairman John Conyers Jr. held a hearing Wednesday to try to revive a bill that would allow retailers an antitrust exemption so they could negotiate with card networks on fee rates and terms. The legislation was approved by the panel in 2008 but did not reach the House floor.
Just as he did two years ago, Conyers, a Democrat from Michigan, found fellow lawmakers from both sides of the aisle had grave concerns about the bill.
"Two wrongs don't make a right," Rep. Melvin Watt, D-N.C., said at the hearing. "To grant one part of an industry an exemption from antitrust laws just seems to me not to be an appropriate way to deal with someone who may be violating the antitrust laws on the other side."
At issue are fees merchants pay issuers to facilitate credit card payments. Retailers contend that the fees are exorbitant, and issuers and the big credit card networks have schemed to prevent merchants from having a say in the interchange system.
Conyers argued that granting retailers an exemption would "rein in the abuses of the credit card industry."
But his fellow lawmakers were not convinced. Rep. Lamar Smith of Texas, the committee's ranking Republican, said the granting of an antitrust exemption creates the potential for collusion between the parties negotiating the fees.
"This bill may not be the appropriate solution," he said.
Rep. James Sensenbrenner, R-Wis., disputed the notion that the fees harm retailers. "I don't think this bill is much better than the previous bill," he said, adding that the "interchange fees actually give the merchants a benefit."
Merchants "pay for the bank or the issuer of the credit card having to absorb any nonpayment," Sensenbrenner said. "As a result, the merchant gets paid in full. … I think that's very valuable for the merchant, and I think they also should pay for it."
Watt said a better solution than granting an exception to antitrust laws may be to outlaw certain fee practices.
For example, merchants claim a provision in the interchange rules bars them from giving consumers discounts on goods when they use a card with a lower interchange fee. (Discover cards typically carry smaller interchange fees than Visa and MasterCard.)
"To the extent that we can identify unacceptable practices in the interchange fee space, we should outlaw those unacceptable practices," Watt said, adding later that a consumer financial protection regulator — envisioned in the broader reform overhaul legislation — could be equipped to address problems with the interchange system. "That agency might well have the capacity to identify some of those … practices."
Another committee member, Rep. Debbie Wasserman Schultz, D-Fla., said she had several questions about Conyers' bill, including "why we're talking about giving an antitrust" exemption "to anyone in this economy, banks or merchants."
The committee heard from a consumer advocate and convenience store representatives supportive of the bill, and a credit union executive who said the bill would hurt small financial institutions.
"These fees have grown out of control and are at anticompetitive levels," said Doug Kantor, a partner at Steptoe & Johnson, who represents multiple merchant trade associations.
But John Blum, the vice president of operations at Chartway Federal Credit Union in Virginia Beach, said the current fee system — which is run by the major card networks — puts financial institutions of all sizes on the same playing field in setting interchange rates. It "allows the credit unions to compete with the largest national banks," he said.
If the bill established limits on interchange fees, the result could tip too much in favor of merchants, he added. (The bill would allow credit unions to opt out of negotiations between merchants and financial institutions that would result in new rates.)
"If mandatory negotiations force new caps on interchange fees, it will enrich merchants while hurting credit unions and consumers," Blum said.