Credit Card Fair Fee Act
Merchants long complained that credit card companies were sticking it to them, and ultimately to consumers, with high "interchange fees." Interchange fees are the fees the credit card companies charge the merchant for each purchase a consumer makes using a credit card. Visa and Mastercard comprise 73 percent of the credit card market and made $48 billion in 2008 on these interchange fees, a 189 percent increase since 2001, according to Payments News. As of March 2010, the Credit Card Fair Fee Act, legislation that would allow merchants to negotiate with the banks and credit card companies, is pending.
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Significance
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Credit card companies charge an average of 1.75 percent of the total purchase as an interchange fee. Merchants are forced to pay this and play by these rules, because not taking Visa or Mastercard from their customers is usually not an option, leaving merchants at the mercy of the credit card companies. The outcome is possibly wiping out a store's---particularly a small store's---profits, while earning lots of money for the large banks.
Function
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Using antitrust laws that ensure competition as its basis, Congressmen Bill Shuster and John Conyers introduced the Credit Card Fair Fee Act into Congress that would allow merchants some room for negotiation with credit card companies. The way it stands now, merchants often pass these interchange fees on to their customers. The goal of the Credit Card Fair Fee Act is to reduce these fees, ultimately reducing costs to consumers. Most consumers are unaware of how much of their purchase is due to credit card fees. Customers who use cash are also paying these fees, even though credit card fee do not apply to them.
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Features
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The Credit Card Fair Fee Act is not an attempt to regulate the credit card industry, nor does it set any mandates for any sort of outcomes, according to Conyers in Payments News. What the bill does is to give merchants an active role in negotiating rates and fees with the banks. The way it is has been happening is that the credit card companies set the rates in secret, which allows for no competition. If the bill passes, merchants will not only be able to negotiate, they will be able to select the bank that will offer the best deal.
Effects
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If the merchants and credit card companies cannot come to terms on an agreement, then the Justice Department and the Federal Trade Commission will arbitrate the matter. Their decision will be binding.
Considerations
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The National Retail Federation estimates that each American family pays $350 per year on interchange fees, according to Consumer Affairs. At approximately 2 percent per transaction, this is higher than all other industrialized nations.
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References
- Photo Credit capitol image by Andrew Breeden from Fotolia.com
