New bill aims to cut merchant fees

New bill aims to cut merchant fees

The proposed U.S. House of Representatives' Credit Card Fair Fee Act could provide lower interchange fees for business owners who rely on merchant accounts for credit card transactions, according to Reuters. However, supporters of banks and credit unions oppose the act, asserting that they already are facing a financial squeeze during the ongoing recession.

Banks that grant most merchant accounts typically charge interchange fees of 1.75 to 2 percent for credit card transactions, rates that critics describe as the highest in the industrialized world. Restaurants, gas stations and convenience stores have argued that they have little or no power to negotiate rates.

Major credit cards owned by banks
Bipartisan legislation has been reintroduced by Rep. John Conyers (D-Mich.), chairman of the House Judiciary Committee, and by Rep. Bill Shuster (R-Pa.). The legislators say the act is especially directed toward a conflict of interest involving Visa and MasterCard, whose members are banks and who control nearly 75 percent of merchant account credit card transactions. American Express and Discover have their own transaction systems.

Representatives of Visa and MasterCard deny any collusion and have lobbied against the act.

"This legislation will give merchants a seat at the table in the determination of these fees," Conyers said in a prepared statement. The act "is not an attempt at regulating the industry and does not mandate any particular outcome," he added. "This bill simply enhances competition by allowing merchants to negotiate with the dominant banks for the terms and rates of the fees."

Opponents such as the Electronic Payments Coalition, which represents merchant account issuers, aren't satisfied with Conyers' explanation.

"This legislation is an attempt by giant retailers to make consumers pay for one of their business expenses -- the cost of accepting credit and debit," said a spokesperson for the Electronic Payments Coalition.

Shuster countered that the prime victims of steep interchange fees are small enterprises, not giant retailers.

Credit card reform continues
Congress recently passed consumer-oriented credit card reform to crack down on hidden fees, sudden rate increases and other practices that have drawn criticism. Conyers and Shuster say their bill offers more credit card reform, this time for business owners.

According to figures released by the Judiciary Committee, interchange fees in 2008 rose to about $48 billion. This is an increase of 33 percent over the past two years.

The Credit Card Fair Fee Act would require a Department of Justice antitrust attorney to monitor interchange fee negotiations between business groups and banks. In an attempt to compromise with the bank lobby, Conyers and Shuster dropped what had been a stronger requirement for judicial binding arbitration. The legislators also scrapped a provision that would require merchants to pass the savings on to consumers.

Published: June 16,2023