The debate over credit and debit card interchange this week went local when California State Assemblyman Pedro Nava, D-Santa Barbara, chairman of the state’s Banking and Finance Committee, conducted a hearing on credit card interchange rates.
Speakers at the Jan. 25 hearing titled “The Evolution of Interchange Fees” included representatives from the U.S. Government Accountability Office, which late last year conducted a study on the history and effects of interchange, and representatives from California-based community banks, the California Credit Union League, and retailers and their representatives.
The government report concluded that rising interchange fees have increased costs for merchants, but that so far legislative proposals to regulate such fees are flawed (
This week’s hearing resulted in plans to further study interchange and its ramifications in California.
Among those addressing the panel was Mallory Duncan, National Retail Federation senior vice president and general counsel, who tells PaymentsSource the economic downturn has heightened the need for interchange reform. “Interchange fees are an issue of national and local concern, especially given the fact that so many consumers are hurting,” he says.
Consumers are forced to pay a higher price on routine purchases because of built-in interchange fees, Duncan told lawmakers. Those fees totaled some $48 billion in 2008, triple the $16 billion in interchange fees merchants paid in 2001, the federation claims.
“The credit card companies not only take a piece of every retail transaction, they also take a bite out of sales taxes,” Duncan told the panel, noting interchange fees cost merchants about 2% of the total sale on every transaction, and merchants are forced to pass fees along to consumers. “Interchange acts as a privately imposed sales tax on U.S. commerce.”
This week’s hearing marked the retail federation’s first appearance at a California legislative hearing regarding interchange. The federation has no other interchange-related hearings scheduled in other states, but it plans to continue to support interchange regulation at local and national levels, Duncan tells PaymentsSource.
The retail federation last year supported three different national legislative bills designed to regulate interchange that were unsuccessful. Two bills would require banks to enter into collective-bargaining agreements with retailers to set interchange rates, and a third would enable merchants to introduce surcharges and ban higher interchange rates on certain cards, such as those with rewards programs.
The federation and other organizations supporting interchange regulation will renew legislative efforts in Washington this year, Duncan says, declining to discuss the federation’s strategy.
