Will Congress curb merchant fees?

Will Congress curb merchant fees?

Credit card users are in a constant battle with banks and financial institutions over the seemingly endless and ever increasing fees and interest charges. Well, in early 2009 Congress heeded the complaints of credit card customers and passed a law to limit increases to credit card interest rates and fees. With this reform, retailers, supermarkets and convenience stores are now seeking similar relief from the merchant fees charged each time they accept a customer's credit card payment.

Credit card interchange fees for merchants
Your business pays interchange fees every time you process a credit card transaction for a customer. The rate of the fees are set by the credit card networks, such as Mastercard and American Express, and can range from 1.6 to 2.5 percent of each credit card transaction. Upon accepting a customer's payment, interchange fees require you to pay your customer's bank a percentage of the payment from your merchant account.

The Merchants Payments Coalition represents over two million retailers, supermarkets and convenience stores throughout the United States. The Coalition has conducted a study on interchange fees, finding that those charged to U.S. merchants are up to six times higher than the fees in other countries. The Electronic Payments Coalition represents the payment card networks and has responded, saying that U.S. interchange fees are still lower than those in Italy, Switzerland and Japan.

Despite our world standing on interchange fees, significant amounts of money are at stake for Mastercard, Visa and others like them. In 2007, the value of interchange fees collected increased by 33 percent from 2006 to $42 billion, and to $48 billion in 2008.

Credit card interchange fees in Congress
Currently, several initiatives to curb the impact of interchange fees on merchants are being discussed in Congress, but retailers are up against sensitive issues such as health care and regulatory reform, which are likely to take priority. Also, although interchange fees cut into profits and raise the prices for customers, there is likely to not be enough tangible benefit to consumers for the changes to pass.

The issue of interchange fees charged to merchants does not seem to be a top priority for many and the changes are not expected to pass Congress in 2009. It is also hard to garner broad political support for the issue, as it is between the merchants and the banks, and not a consumer issue. A Government Accountability Office study to be released in November 2009 is expected to aid the fight, so too are other reforms in the financial services industry in recent months, which could pave the way for retailers.

The Credit CARD Act of 2009
The first phase of the Credit CARD Act was implemented in August 2009 and the reforms are set to make credit card fees, charges and interest rates fairer and easier to understand for consumers. Reforms will also provide new ways for the credit card issuers to calculate and protect their risks. For example, a statement must be sent to the credit card holder 21 days before his or her payment is due and the customers must receive 45-day notice before an interest rate rise. While before anyone over the age of 18 could be issued a credit card, many new card holders under 21 years old will now require a co-signer to the account.

The second phase of the Credit CARD Act will come into effect in February 2010 and will only allow credit card issuers to raise interest rates on existing balances if the customer payment is over 60 days overdue, if the promotional rate has expired, if the customer has not kept to the workout plan or if the variable rate has changed because of movement in an index. If the interest rate is raised because of late payment, the rate must also be lowered again once the customer has made on-time payments for six months.

With tighter regulation across the credit card industry especially aimed at making consumer fees and payments more transparent, the spotlight will eventually also turn to the impact of credit card processing fees, just don't expect to see the benefits in your merchant account this year.

Published: October 22,2023