ACTION ALERT: Credit Card Interchange Fees

The House of Representatives will debate a consumer credit card bill on the floor next week and we need your help to gain support to insert interchange fee provisions into the final floor version of the bill.

Representatives Peter Welch (D-VT) and Bill Shuster (R-PA) are going to offer the Welch-Shuster interchange fair fee amendment to the Credit Cardholder’s Bill of Rights Act (H.R. 627) next week when it is considered on the House Floor. We believe the language will be similar to the Credit Card Interchange Fees Act.

The Credit Card Interchanges Fee Act

Visa and MasterCard control roughly 80% of the payments card market and abuse that market power by refusing to negotiate rates and terms with the merchants who accept their cards. Credit card interchange fees are the only operating cost merchants are powerless to negotiate and these growing costs are one of the largest business expenses companies face. Interchange fees – averaging roughly 2% a transaction – take a bigger chunk out of retailers’ bottom line than both energy and health care costs.

These are extraordinary economic times. Main Street businesses are struggling to keep their doors open and these anticompetitive rates and terms are hindering their ability to do so, and to keep prices low for the customers they serve. Additionally, these fees are particularly harmful to small business. Small business is the backbone of job creation in this country, and placing undo burdens on small merchants, particularly in the current environment, is unconscionable.

This legislation would eliminate the anticompetitive rules Visa and MasterCard impose on merchants, allowing merchants, for the first time in regard to card acceptance, fundamental decision-making rights in how they run their business. This legislation will increase transparency in the payments card industry and make the true cost of card acceptance evident to consumers who have also been deprived of the right to make an informed decision regarding their choice of payment.

Eliminating Visa and MasterCard’s restrictive merchant rules is critical to create a fair and transparent payments system that fosters both consumer and merchant choice.

Summary of Welch Interchange Legislation

Part 1: Prohibit anti-competitive practices.  These all address practices that are banned by the contracts merchants sign with Visa and MasterCard.  We believe that these are fundamental rights that ensure an open, competitive market and should not be able to be limited by the credit card companies.

  • Eliminate Additional Charges for Premium Cards or access devices.  This section prevents credit card companies from charging the merchant more when a customer uses a “special” card, like a rewards card, or a corporate card or internationally issued cards.
  • Pricing display restrictions. This section allows merchants to offer a lower price for customers who pay with lower cost payment types or devices.
  • “Honor all cards” rule.  This section allows merchants to choose not to accept certain cards that have especially high fees.
  • Steering customers.  Allows a merchant to ask a customer if he/she is willing to use an alternative payment device.
  • Single entity rule.  Allows a business to not accept cards at a given location.  E.g. a company with a website and a retail store can decide to accept payment types and devices for their online business, but not in their retail location.
  • Reason code 96 chargebacks.  Relevant mostly at the gas pump where when you swipe a card, a $75 transaction is authorized.  As gas prices rise, these transactions are frequently exceeding the $75 authorization amount.  We’ve heard reports that Visa is denying any repayment to the merchant in some of these situations.  This section prohibits that.
  • Maximum/minimum transactions.  Allows merchants to set a minimum for purchases initiated with a credit card or other payment device (many places do this anyway, like $5 minimum, but it technically violates the rules).  Also would allow merchants to set a maximum so that transactions don’t exceed the preauthorization amount discussed in the previous section
  • Restrictions on network routing on PIN transactions.   Allows merchant to choose which financial routing network to use (Cirrus, NYCE, Interlink, etc) based on which is least costly for them.
  • Restrictions on number of Transactions. This section prevents credit card companies from requiring any merchant to conduct any minimum number of transactions for using such network’s payment device during any given time period.

Part 2: Disclose Rules and Provide FTC Authority to Eliminate Anticompetitive Rules. This section requires MasterCard and Visa to disclose all terms, rates, and conditions to the FTC and allows the FTC to review and determine if any practices are anti-competitive.

Part 3: Require full disclosure of interchange or other fees collected from merchants to the Fed and the public. Creates mechanism through the Federal Reserve for the disclosure and publication of full terms and conditions of the credit card company contracts.

Part 4: Require full disclosure of interchange or other merchant-paid fees to consumers.  Requires credit card companies to disclose to consumer in several places the interchange rates they are charging.

To find your elected officials, The Coalition of Franchisee Association (CFA) offers a great resource to help you identify both your National and Local elected representatives:  register here

Send this letter to your Congressman Today!

Dear Representative:

I am writing to ask you to co-sponsor an amendment on credit card interchange fees to be offered by Congressmen Peter Welch (D-VT) and Bill Shuster (R-PA) when H.R. 627, the Credit Cardholders’ Bill of Rights, is considered on the House floor in the next few days. Interchange fees are uncontrollable and one of the largest business costs our company faces. Addressing these out of control fees is a very necessary part of comprehensive credit card industry consumer protection reforms as rising interchange fee costs significantly impact our ability to keep prices low for customers.

Curbing abusive credit card industry practices without addressing interchange fees is unrealistic. These hidden fees have tripled since 2001 and last year cost Main Street businesses and American consumers, who are struggling to get by in this tough economy, roughly $48 billion. There is a complete lack of competition and transparency in the current system as Visa and MasterCard and the big banks use their market power to set anticompetitive interchange rates and contract terms.

The Welch-Shuster interchange amendment will eliminate the anticompetitive rules Visa and MasterCard impose on merchants, allowing merchants, for the first time in regard to card acceptance, fundamental decision-making rights in how they run their business. This amendment will also increase transparency in the payments card industry and make the true cost of card acceptance evident to consumers who have also been deprived of the right to make an informed decision regarding their choice of payment.

I strongly encourage you to co-sponsor the Welch-Shuster amendment before the early morning filing deadline on Tuesday, April 28. The Welch-Shuster amendment will bring much-needed competition and transparency to the credit card industry and provide needed relief for small businesses and consumers struggling to stay afloat.  Please contact Calvin Garner in Mr. Welch’s office at 202-225-4115 or calvin.garner@mail.house.gov or Maribeth Collins in Mr. Shuster’s office at 202-225-2431 or maribeth.collins@mail.house.gov to cosponsor the amendment.

Sincerely,