The goWholesale Blog

Credit Card Fair Fee Act

March 11th, 2008

For years now, consumers have enjoyed the benefits of being able to use their Visas, Mastercards, American Expresses, etc. practically anywhere there are things to buy. Consumers sign up for credit cards to pay off other credit cards and with the ease and accessibility of online shopping, the credit industry is booming.

What consumers don’t know (or didn’t) is that the cozy relationship between merchants and credit card companies, isn’t really all that cozy. Up until now, credit card companies have imposed what is called an “interchange” fee on merchants every time a consumer uses a credit or debit card to make a purchase. These fees are calculated independently by the credit card companies and are effectively hidden from the consumer who also ends up paying the fees in the form of product mark ups. The average cost per household is $350 a year. The total amount of interchange fees Visa and Mastercard collected in 2007? $42 billion.

Well, now congress is involved and things are looking up for merchants and consumers alike. Last week, House Judiciary Committee Chairman John Conyers, D-Mich. introduced the Credit Card Fair Fee Act. This proposed legislation according to the National Retail Federation website (who is, in fact, leading the campaign for the approval of this legislation):

“The Conyers bill would require credit card systems possessing “substantial market power” to negotiate with merchants to reach a voluntary agreement on credit card terms and conditions. If an agreement cannot be reached, both sides would be required to submit to binding arbitration by a three-judge panel appointed by the Department of Justice and Federal Trade Commission.

The arbitration proceedings would take place with a limited 60-day discovery period and other statutory deadlines, and the judges would be required to apply a market standard reflecting a perfectly competitive system where neither side had market power. Terms and conditions set by the panel would be in effect for three years, at which time the process would repeat itself. Both sides would receive limited immunity from antitrust laws in order to participate in the process.

The legislation requires that terms and conditions set under the process be available to any merchant regardless of size, industry or location. Individual merchants or groups of merchants would remain free to negotiate voluntary arrangements with credit card companies and their banks.”

The legislation is coming about in response to a hearing in July 2007 where the NRF argued that the credit card interchange fees violate antitrust laws. If it goes through, consumers and businesses alike could see an impact on how much money they save. Stay tuned…

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Posted in Finance and Accounting, In the News |

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