Credit card firms oppose merchant-fee limit
Member banks set transaction rates
WASHINGTON - Visa Inc. and MasterCard Inc. are trying to derail legislation sought by retailers that would create a US government tribunal to set fees that the credit card companies' member banks charge merchants.
A House Judiciary antitrust subcommittee held a hearing yesterday on the tribunal proposal, a bipartisan measure introduced by House Judiciary Committee chairman John Conyers, a Michigan Democrat. The fees yield an estimated $42 billion in revenue annually.
The legislation would force Visa and MasterCard to directly negotiate with retailers the "interchange fee" for each transaction.
If such talks fail to produce agreement, a panel of three administrative law judges in the Justice Department would set the rates.
The measure is akin to public utility regulation, Visa's general counsel, Joshua R. Floum, testified. "We all will end up with significantly less competition, slower growth, and reduced innovation," he said. Visa has "every incentive" to set competitive rates that encourage retailers to honor use of credit cards by customers, he said.
The Conyers bill is the latest move by regulators and lawmakers to put more controls on the credit card industry and its lending practices.
Retailers say the plan would spur competition, forcing Visa and MasterCard to negotiate fees.
Joshua Peirez, a MasterCard executive, accused merchants of asking Congress to help them win "a basic commercial dispute" to lower their payments.
Merchants have "spurned opportunities for negotiation" to pursue "litigation and legislation," he said, referring to dozens of antitrust lawsuits accusing the credit card networks and member banks of price fixing.
The fee, about 2 percent of each transaction, is paid by the merchant's bank to the cardholder's bank. It is the biggest component of the "merchant discount fee" that banks charge retailers to process each transaction.
The merchants' "negotiating ability is illusory" because banks won't discuss changing the payments, which make up 80 percent of what banks charge retailers, said Thomas L. Robinson, who operates Rotten Robbie, a chain of gas-and-go convenience stores in the San Francisco Bay area.
Banks are only willing to negotiate the smaller components of the fee, he said. That is like being told by appliance dealers that the price of a refrigerator is nonnegotiable so "feel free to negotiate on the delivery charge," he said.
The $7.6 billion in credit card fees that US convenience stores paid banks last year was more than twice the stores' $3.4 billion pretax profit, said Robinson, citing figures compiled by National Association of Convenience Stores.
Two years ago, MasterCard capped the fees its member banks charged gas stations, Peirez said.
"This is a monopoly," said Utah Representative Chris Cannon, one of 14 Republicans cosponsoring the Conyers bill. He suggested it amounts to an entry fee for retailers who choose to accept credit card payments.
"The merchants have to take part if they are going to be in business," Cannon said.
Congress probably won't pass the bill this year as sponsors build wider support for it, he said.
Senate Banking Committee chairman Chris Dodd, a Connecticut Democrat, has a separate proposal aimed at helping customers, requiring credit card companies to give consumers 45 days' notice before raising interest rates and barring fees for late payments and exceeding credit limits.
Also, the Federal Reserve has proposed barring banks from raising interest rates on credit card balances.
Merchant groups say that high-volume, low-margin businesses such as gas stations and supermarkets are squeezed by the fees.
