WASHINGTON -- Credit card issuers and retailers could have their disagreement over interchange fees one step closer to being resolved this week.
Sources among trade associations representing both sides say there is a strong chance the House Judiciary Committee will mark up a bill requiring the negotiation of an interchange settlement between retailers and credit card companies. If merchants and credit card companies cannot reach an agreement, both sides would have to submit to binding arbitration by a panel of judges appointed by the Department of Justice and the Federal Trade Commission.
CUNA and NAFCU are strongly opposing H.R. 5546, the Credit Card Fair Fee Act, which is sponsored by Rep. John Conyers (D-Mich.), the committee's chairman. Both groups say the additional fees could cause credit unions to stop issuing credit cards, and thus limit consumer's options.
NAFCU is also citing recent data breaches at Dave & Buster's restaurants and the Wards Web site, which is owned by Direct Marketing Services, and complaining that neither of those firms will pay any money to cover fraudulent transactions resulting from the breach.
"Data breaches cost credit unions big money. Credit unions spend $100 million in payment card fraud annually. The credit unions and banks that issued the credit cards will spend time and money closing down accounts, opening new accounts and issuing new cards to customers whose information has been compromised,'' NAFCU President Fred Becker said in a statement.
But J. Craig Shearman, vice president for government affairs/public relations at the Direct Marketing Association disputed Becker's description.
"Under the terms of contracts between merchants and processors, the party responsible for the breach, pays for it,'' he said in an interview.
The U.S. Department of Justice has indicted three men it alleges were involved in a scheme to hack into cash registers at 11 Dave & Buster's locations and steal data from thousands of credit and debit cards involving more than $600,000.
At least 51,000 records were exposed as a result of backing into the Wards Web site, though the firm notified credit card issuers it did not notify affected customers. Currently, 44 states have laws requiring companies to notify customers if there is a data breach. No arrests have been made in that case.
Though data breaches are a source on concern to retailers and financial institutions, they have not been the main focus of dispute when discussing interchange fees.
Shearman said his group's main concern is that the current system in which financial institutions hurts retailers and consumers.
"There's a lot of momentum behind the bill,'' he said. "This will restore fairness to the system and it's not a fee cap, as those on the other side say.''
NCUA Vice President for Legislative Affairs Ryan Donovan disagreed and said the system works well as is.
"This would upset a working market. If you put in price controls on interchange fees, the market would react negatively. The idea of free checking could go out the window and smaller financial institutions could stop issuing cards and that would make credit less available to consumers,'' he said.