Legislating lower fees

Imposed on retailers to pay the bank's cost of handling customer transactions, these fees typically run about 1.75 percent of a transaction, plus 20 cents. Legislation introduced by top House and Senate Democrats — the Credit Card Fair Fee Act of 2008 (H.R. 5546/S. 3086) — allows aftermarket and other retailers to renegotiate these fees.

The bill grew out of retailer complaints that fees are higher in the U.S. than in other countries, as well as skepticism regarding interchange fee use. According to a report by the Federal Reserve Bank in Minneapolis, U.S. interchange fees average around 1.75 percent, while in other industrialized countries such as Britain, interchange fees typically average only 0.7 percent. Another study indicated that only around 13 percent of collected interchange fees are devoted to covering the cost of processing credit card transactions.

Retailers also complain that Visa and MasterCard frequently impose take-it-or-leave-it contractual terms and conditions on retailers, such as acceptance rules that require retailers to honor all cards issued by that credit card company, even if the card is a rewards card with a higher interchange rate.

The House Judiciary Committee passed the bill in July by a 19-16 vote, with two Republicans voting with the Democrats. Rep. John Conyers, D-Mich., chairman of the committee and a sponsor of the bill, has shown a commitment to moving this bill forward.

When the House committee voted on the bill, Conyers pulled out a binding arbitration provision that would have allowed the Federal Trade Commission and U.S. Justice Department to appoint a three-judge panel to impose an agreement if the retailers and credit card companies could not come up with a voluntary accord on interchange fees. The move swayed the support of some committee members who saw the three-judge panel and its power to impose a settlement as a step toward federal price controls. But it is not clear whether Conyers will attempt to put that provision back in the bill when it comes up for a House floor vote.

Voluntary negotiations between retailers and credit card companies might lead to a settlement. But they seem far apart on the interchange fee issue, which is just one component of the "merchant discount fee," which typically takes $2.50 out of every $100 of merchandise sales. As much as $2 can go to the interchange fee, which the credit card company's bank charges the retailer's bank. The retailer ultimately pays that $2 by increasing his prices.

The bill also requires merchants to pass on to consumers whatever reductions they get from negotiations.

The bill is expected to go to the House floor in September, but with Congress leaving town in mid-October for the rest of the year to campaign for the Nov. 4 elections, the credit card bill might not be voted on this year. Still, with most of the spadework already done, it will be slated for quick action in 2009.

Stephen Barlas has been a full-time freelance Washington editor since 1981, reporting for trade, professional magazines and newspapers on regulatory agency, congressional and White House actions and issues. He also writes a column for Automotive Engineering, the monthly publication for the Society of Automotive Engineers.