The recent Credit Card Responsibility and Disclosure Act instructed the GAO to study the interchange issue and report how credit card interchange has changed over time, how credit card competition has affected consumers, the benefits and costs to merchants in accepting cards and the potential impact on consumers of the various options to reduce the interchange costs to merchants.
Essentially, the GAO found that none of the four different strategies for reducing the cost of card interchange to merchants would be ideal, a fact that the major card brands, as one would expect, pounced upon.
"If these measures were adopted here, merchants would benefit from lower interchange fees," GAO wrote in a highlight of the report. "Consumers would also benefit if merchants reduced prices for goods and services, but identifying such savings would be difficult. Consumers also might face higher card use costs if issuers raised other fees or interest rates to compensate for lost interchange fee income. Each of these options also presents challenges for implementation, such as determining at which rate to set, providing more information to consumers, or addressing the interests of both large and small issuers and merchants in bargaining efforts."
"We are pleased that for the second time in two years, the GAO has seen no need to call for congressional intervention to regulate interchange," Visa said after GAO made the report public. "Not surprisingly, the GAO reached many of the same conclusions found in its previous reports, including the fact that merchants benefit from electronic payments through increased sales, faster checkout times, as well as greater convenience; consumers benefit from the convenience of electronic payments over cash and checks, providing improved theft and loss prevention, and easy record keeping and interchange is important to community banks and credit unions, providing them with the ability to offer card programs and benefits on par with major financial institutions."
Shawn Miles, head of global public policy for MasterCard, echoed Visa's statement but added additional observations. Miles pointed out the report also confirmed that interchange regulation in Australia hurt consumers. It concluded that when the government mandated interchange be cut in half, Australian cardholders saw their annual fees rise and benefits shrink. At the same time, the report said, it was difficult to find any evidence that retailers lowered prices to reflect the lower interchange fees.
CUNA and NAFCU chimed in on how important card interchange is to credit unions.
"The report rightly pinpoints the fact that [card] interchange is a significant source of revenue for smaller issuers such as credit unions. In many cases, this revenue allows credit unions to offer credit card programs to their consumer-members which are competitive with card programs offered by much larger institutions," CUNA President/CEO Dan Mica said in a statement reacting to the GAO report release.
NAFCU President/CEO Fred Becker offered a similar perspective.
"The GAO report issued today supports the very concerns that we have been expressing about the currently proposed interchange fee legislation. Consumers could suffer because the legislation would limit competition from smaller institutions, like credit unions, which offer credit card programs to their members at lower rates. Additionally, the report did not find that consumers would benefit from any savings if
this legislation were to pass. The GAO report shows that only large retailers would benefit from this legislation at the expense of consumers and smaller financial institutions. Ultimately, from our perspective, we believe Congress should do everything possible to prevent the harmful interchange fee legislation from
Of course, the retail lobby seeking to cap interchange looked at it differently.
"This report shines a spotlight on credit card fees and their cost to consumers," said Mallory Duncan, general counsel for the National Retail Federation about the report.
"In the past two weeks we've seen the Federal Reserve Bank of Kansas City hold a major conference on credit cards, a study from the Hispanic Institute on how card companies take from the poor and give to the rich and now this document. Clearly, there is a growing focus on this issue and it's time for action. With this information in hand, we hope Congress will move quickly to pass legislation to bring these fees and practices under control. This report confirms what we have been saying about swipe fees for years-that they drive up costs for consumers and are a cash cow for banks," Duncan said.
The two sides were able to agree on the likelihood that the report did not really change anything about the issue nor necessarily give Congress any firm guidance in what, if anything, it might do about reducing interchange cost. Industry observers also noted that Congress' still crowed calendar made any further discussion of an interchange cap less likely before the mid-term elections in 2010.