Lost in much of the hoopla regarding pending credit card legislation is the impact a proposed amendment may have on businesses as well as consumers. The proposed Welch-Shuster Credit Card Interchange Fees Act of 2009, or H.R. 2382, is intended “to amend the Truth in Lending Act to prohibit unfair practices in electronic payment system networks, and for other purposes,” according to govtrack.us. The proposal was introduced and referred to committee in the House earlier this week, also according to govtrack.
The bill would, among other things, let merchants refuse to accept cards with especially high fees, allow retailers to set minimum purchase levels for customers using charge cards, and finally, let them choose the financial routing system that’s least costly. Nothing too unreasonable.
Not surprisingly, a number of trade groups whose business members are focused on the consumer market support the legislation, including the National Retail Federation, the National Grocers Association, and the Food Marketing Institute.
To be sure, they’re up against a tough opponent. “On the interchange side, there’s a very tight oligopoly, close to a monopoly,” says Mike Moebs, economist and chair of Moebs $ervices Inc., a Chicago-based research and consulting firm focused on the financial services industry. (Interchange fees are the fees that the merchant’s bank pays the customer’s bank when accepting a credit card payment.) In 2006, Visa captured 44 percent of the U.S. credit card market, and MasterCard 31 percent, according to this story in Forbes.
The sums involved are substantial. Interchange fees totaled approximately $42 billion in 2007, notes this report in the Library of Congress.
Nonetheless, previous efforts to enact similar legislation have gone nowhere. For instance, last year’s Credit Card Fair Fee Act of 2008 (H.R. 5546) was introduced but never made it into law.
This time, it appears that merchants and other businesses that accept credit cards have Congress’s ear. What’s more, the proposed amendment should benefit from a growing populist sentiment that changes to the credit card industry are warranted.
And, the tight economy may, in one way, actually help retailers. Moebs notes that a growing number of consumers are using debit cards, rather than credit cards, to pay for their purchases. When they do, the interchange fees typically range from 20 to 30 cents, versus 60 cents to $1 dollar with credit card purchases.
Of course, the card issuers, with an eye on the changing landscape, may try to boost the fees they get on debit card transactions. The long-term solution is greater competition in the card-issuing marketplace. “If we had a dozen Visas, we’d have competition and it would drive down the cost,” Moebs notes.