Issue Heating Up After Long Hiatus, Interchange Issue Is Back; Retail Coalition Mounting D.C. Area Ad Campaign
WASHINGTON -- Don't look now, but it appears the issue of credit card interchange may be reappearing on the national agenda.
Credit card interchange is the amount of money the credit card brands charge retailers to take their cards. It is usually charged on a transaction basis and its rate can depend on a wide variety of factors, ranging from how many transactions a retailer has in a given period to the type of card the customer uses to the type of product they buy.
The card brands have historically justified charging interchange as a way to recoup the costs of bringing the cards to market, as well as covering the cost of processing, maintenance, fraud and fraud prevention. Retailers have long charged that the card brands have unfairly set interchange rates and that the two biggest brands, Visa and MasterCard, are effectively a monopoly who benefit from the unfair pricing.
The issue has never had a great deal of attention from lawmakers because retailers have generally tried to attack the matter through the courts and because a Congress led by the Republicans was less welcoming to the idea of any new regulation or law to correct what many lawmakers saw as an issue the market could address, according to sources who track the issue.
But others doubt that even a Democratic Congress would do much on the topic, which is likely headed back into the headlines.
"I would be very surprised if Congress did anything on this," said David John, a financial service issue analyst with the Heritage Foundation, a conservative Washington, D.C. think tank. John maintained the biggest issues blocking any new legislation on interchange were the complication of the issue itself and the ability of each of the sides to lobby lawmakers on their points. "Both sides are very good on this issue and I think that is going to make it very hard for Congress to really do anything on it."
However, John acknowledged that the retailers have managed to lift the issue higher on lawmakers' agendas, primarily through the efforts of the Merchant Payments Coalition. John said the MPC had met with him once, extensively, to brief him on their side of the dispute.
The MPC is a group of retailers specifically formed to address the interchange issue. Its members include giants like the National Retail Federation to smaller retail groups at the state level or organized around specific industries, such as the National Association of College Stores.
Although it has been around for several years, the MPC has only recently achieved a measure of success raising the issue. The House Judiciary Committee's AntiTrust TaskForce has scheduled a hearing on the issue for July 19 and even thought the task force has yet to announce the hearing's witnesses, sources familiar with the issue say that Mallory Duncan, chairman of the MPC and general counsel for the NRF will be one of those testifying.
Representatives from the card brands and consumer groups will be there as well. As of press time it is unclear if there will be any representatives from card issuers testifying.
In the run up to the hearing the MPC has launched an advertising campaign in Washington area newspapers to try to draw attention to the issue and build public support.
The ads feature a man buried up to his neck in mailed credit card offers and charges that interchange is the source of money that issuers use to fund the credit card mailings.
"We're not turning a mountain into a molehill; it's already a mountain--of unwanted mail solicitations coming at you directly from the credit card companies. And the fees they charge you pay for all that unwanted junk," the ad reads.
Christy Moran, spokesman for the Coalition, said that her group had not specifically asked for the hearing, but acknowledged that there had been a significant lobbying effort with a number of different legislative committees to draw attention to the issue.
A big part of the retailers' case against interchange is that Visa and MasterCard, and their issuers, charge too much for it and use the additional money to market their cards and fund incentive rewards programs. They have also charged that the process for setting interchange rates is too secretive and arbitrary, representing the card brand's monopoly of the market.
The card brands have responded to the latter charge with reorganizations that both opened the process of setting interchange rates to more transparency and made interchange rates public. Both Visa and MasterCard began publishing their interchange schedules publicly this year, though the schedules remain as complicated as ever and thus of little meaning to the public overall.
But the card brands most important argument in defense of interchange is that it has worked. Credit cards are now a major part of the American payment system and a matter of convenience and security to both consumers and retailers, the card brands argue.