Senators prepare bill to crack down on credit card swipe fees

A bipartisan bill that would reduce Visa and Mastercard's influence over the interchange fees merchants pay for credit card payments will shortly be introduced in the U.S. Senate, The Wall Street Journal reports.

Senator Dick Durbin, D-Illinois, and Sen. Roger Marshall, R-Kansas, are set to propose a bill this week that would expand competition between credit card networks, giving merchants more choices in how to route credit card transactions, according to the report.

The move follows years of merchants complaining that the existing system where Visa and Mastercard independently set credit card interchange rates — which are among the highest in the world — is anticompetitive. 

Payment card interchange is the fee paid to card-issuing banks with each credit or debit card transaction to promote security and to help cover the cost of fraud, Visa and Mastercard have previously said.

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The Merchants Payments Coalition, a Washington-based organization representing retailers, said credit card interchange rates have been steadily increasing in recent years, despite improvements in digital technology. Credit card swipe fees currently amount to about 2% per credit card transaction, costing merchants about $138 billion last year, the MPC said.

Durbin, who crafted his namesake amendment to the Dodd-Frank Act of 2010 that capped debit card interchange for financial institutions with more than $10 billion in assets, has been calling for credit card interchange rate reform for years.

In May Durbin convened a Senate Judiciary Committee hearing to address merchants' demands for relief from rising swipe-fee costs as inflation began to spike. Earlier this year he joined other lawmakers in signing a letter asking Visa and Mastercard to halt an increase in credit card interchange that ultimately went into effect in April. 

The retail industry, which wants the Federal Reserve to lower a decade-old price cap, has been complaining that higher prices for consumers mean heftier interchange fees. But banks are pointing out that the $10 billion-asset threshold below which financial institutions are exempt from the cap hasn’t been adjusted for inflation.

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Visa and Mastercard have not weighed in on the situation, although both card networks earlier indicated that in April they actually lowered credit card interchange rates for some businesses and categories of transactions.

“Routing mandates on credit cards is a multibillion dollar corporate welfare scheme for big box retailers that will lead to less secure, less innovative, and higher-risk transactions for American consumers,” Jeff Tassey, board chairman of the Electronic Payments Coalition, which represents card issuers and networks, said in an emailed statement.

The EPC also pushed back last month on one aspect of merchants' theories about inflation's role in rising swipe fees, noting that the asset threshold for financial institutions exempted from the Durbin amendment hasn't been adjusted in more than a decade.

Under today's economics, the cutoff for protected institutions should be $7.7 billion, meaning a much larger group of banks and credit unions should currently be exempt from the rule capping debit interchange, the EPC contends.

Despite merchants’ claims, there is plenty of existing competition at the point of sale between payments networks including the cash-payment option, said Greg Mesack, senior vice president of government affairs with the National Association of Federally-Insured Credit Unions.

“Merchants’ groups can talk about mom-and-pop stores, but this is really an attempt at legislative cost-shifting by big-box retailers who are trying to further reduce their costs,” Mesack said. 

Any proposed bill addressing credit card interchange would likely amend the Electronic Fund Transfer Act, which would likely fall under jurisdiction of the Senate Banking Committee.

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