Credit card interchange fees continue to be a hot topic. These fees, which credit card companies charge to merchants for the right to accept cards, have been controversial for decades. Visa and MasterCard set these fees for their issuers, and as a result, banks such as Citibank, Bank of America, and JP Morgan Chase do not compete on merchant fees. Merchants also claim that even American Express and Discover do not effectively compete.
Although a massive multi-district class action challenging the fees on antitrust grounds has been chugging along for several years, many merchants apparently believe that Congress may prove to be a more fruitful avenue. A coalition of U.S. merchants calling themselves the Merchants Payment Coalition ("MPC") has launched an aggressive advertising campaign seeking to influence the process.
Last July, the House Judiciary Committee approved the Credit Card Fair Fee Act, which would have permitted merchants to negotiate the fees that they pay credit card companies as a group and created some government oversight if negotiations failed. That legislation got lost in the flurry of activity last fall. But the issue has not been forgotten. Staffers in both houses have indicated to me that Congress plans to address the issue, although no consensus has emerged as to the proper course.
The MPC supported the Fair Fee Act bill last summer, but it is currently refraining from backing any specific proposal. Instead, it has lined up a series of meetings with committee members to express its views.
A number of proposals have been made for increasing merchant fee competition. I have proposed requiring the largest Visa and MasterCard banks to set their own fees. Adam Levitan has called for permitting merchants to surcharge credit card transactions, and Allan Frankel has suggested multi-network cards that permit the merchant to choose the processing network. Regulators in Australia and other countries have sought to limit merchant fees to the amount necessary to cover only certain identifiable costs. As Congress generally moves back into the business of regulating financial markets, it will be interesting to see how it approaches credit cards.
2 comments:
What seems unbalanced by this practice is that Visa and Mastercard will not allow individual merchants to charge the fee back to the consumer directly. They will allow a different "cash price" than "credit price," but merchants cannot specifically associate an additional fee to a credit card transaction.
In their class action against Visa, MasterCard, and a number of large issuing banks, the merchants argue that denying them the right to surcharge credit card transactions is an unlawful restraint of trade. Professor Adam Levitin at Georgetown has written extensively on this topic and agrees that no surcharge rules are anticompetitive. I'm not so sure. There are some powerful economic arguments to the contrary that I've addressed in a prior blog, http://ucclaw.blogspot.com/2008/06/butchering-credit-cards.html, as well as in a response to Prof. Levitin on UCLA's Discourse that is hopefully available here: http://www.uclalawreview.org/discourse/index.aspx?view=56/1/1-1.
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