Congress Hears Merchants, Networks Battle Over Interchange

Congress yesterday held hearings on credit card interchange fees, as legislators continued to press the payments industry on its practices and costs.

Merchants have long complained that interchange is a non-negotiable fee set by the payment card networks and card issuing banks. They complain that interchange fees are set too high for their purported benefits such as security and marketing.

Interchange is a percentage of every credit card or debit card transaction that merchants pay to the payment networks. It can range from about 1.5 percent of the transaction cost to more than 3 percent. Merchants paid $42 billion in interchange last year, according to testimony Thursday to the House Judiciary Committee antitrust task force.

A bipartisan proposal from Democrat Rep. John Conyers of Michigan and Republican Rep. Chris Cannon of Utah would give merchants a greater say in the interchange fee. Conyers chairs the task force.

MasterCard, Visa, and the trade group the American Bankers Association (ABA) defended the interchange charges, arguing that regulating the setting of fees would be equivalent to setting price controls. That would lead to higher costs for consumers, the networks contend.

Accepting cards means “immediate and guaranteed” sales for merchants who don’t have to worry about “bad check losses, employee theft, check float loss, costs associated with billing and collections, and costs associated with managing and depositing cash,” the ABA said.

In April, the Federal Reserve and other major banking regulators proposed restrictions on the late fees and annual payment rates charged by credit card issuing banks (“Fed Set to Tighten Screws on Card Issuers: Report," April 29).