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WASHINGTON — The National Retail Federation urged the House Judiciary Committee to support antitrust legislation scheduled for a hearing today that would require Visa and MasterCard to negotiate with merchants over credit card processing fees, saying a hidden fee charged by the two card giants is projected to cost the average U.S. family more than $400 this year.
If consumers knew how much they are actually paying for credit cards, most would say they aren t worth the price, NRF Senior Vice President and General Counsel Mallory Duncan said. U.S. consumers are paying an outrageously high annual fee that most don t even know about, and the price is going up dramatically every year.
There is no transparency and no negotiation under the current system, Duncan said. This legislation would bring about true competition among the banks that issue credit cards, giving retailers the opportunity to negotiate terms on behalf of themselves and their customers that reflect the actual cost of the services provided.
According to NRF estimates, the average U.S. family is projected to pay $427 in hidden credit card interchange fees in 2008. The figure is based on the $48 billion Visa, MasterCard and their banks are projected to collect in interchange during 2008 divided by the U.S. Census Bureau s estimate of 112.4 million households. The number is up from $378 in 2007, and has nearly tripled from the $159 paid in 2001, the year NRF began tracking interchange.
Averaging close to 2 percent, interchange is a non-negotiable fee Visa and MasterCard banks charge merchants every time a credit card or signature debit card is used to pay for a transaction. Visa and MasterCard collected an estimated $42 billion in interchange fees in 2007, and the amount is increasing at an average of close to 17 percent per year. Visa and MasterCard effectively force merchants to pass the fees on to consumers by requiring them to be included in the advertised price of items and making cash discounts difficult. But interchange is largely unknown to most consumers because Visa and MasterCard keep merchants from disclosing it on receipts and don t disclose the fee on monthly statements.
A 2006 report by Chicago s Diamond Management and Technology Consultants Inc. found that only 13 percent of the interchange fee is needed for actual transaction processing costs, with most of the rest going to the cost of card issuers rewards programs and profits.
The House Judiciary Committee s Antitrust Task Force is scheduled to hold a hearing today on H.R. 5546, the Credit Card Fair Fee Act of 2008. Sponsored by committee Chairman John Conyers, D-Mich., the 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 their final offers to binding arbitration by a three-judge panel appointed by the Department of Justice and Federal Trade Commission.
Duncan testified before the Task Force last summer on how Visa and MasterCard banks work through each of the two credit card companies to set interchange rates that all banks agree to charge regardless of which bank s name is on a card. In doing so, the two card companies each operate as illegal price-fixing cartels in violation of antitrust law, he said. The fees are imposed on merchants on a take it or leave it basis, and with Visa and MasterCard controlling more than 80 percent of the credit card market retailers cannot afford to refuse, he said.
The National Retail Federation is the world’s largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry’s key trading partners of retail goods and services. NRF represents an industry with more than 1.6 million U.S. retail companies, more than 25 million employees – about one in five American workers – and 2007 sales of $4.5 trillion. As the industry umbrella group, NRF also represents over 100 state, national and international retail associations. www.nrf.com