Credit Card Interchange Fight Looms
Just months after their victory over banks and credit unions on the debit interchange issue retailers are gearing up to fight another battle.
This time they have in their line of fire what they describe as excessive credit card interchange fees.
Congress or the Consumer Financial Protection Bureau or both could be the site of the next clash of the competing interest groups.
“It won’t happen quickly, but it’s going to happen. You can’t have a competitive marketplace if there are unfair fees, and we plan to educate people about this the way we did on the debit issue,” said National Retail Federation Senior Vice President and General Counsel Mallory Duncan.
His association recently launched a $10 million grassroots and Washington lobbying campaign to enact its legislative agenda, including getting caps on credit card interchange fees.
Sen. Richard Durbin, whose amendment to the Dodd-Frank bill mandated that the Federal Reserve regulate debit interchange fees, is taking a wait and see approach on credit card interchange.
“I am not ruling anything out. I think it’s important to see this law implemented. I want to see how it will work and what impact it might have,” Durbin (D-Ill.) said in an Oct. 4 conference call with reporters. “We will have to watch and see how this develops. I am not making any promises about future legislation.”
So far, no legislation on the subject has been introduced in this session of Congress.
“I am not surprised that the retailers are talking about the issue. But when I talk to folks on Capitol Hill, there is a fatigue from the last fight,” said CUNA Senior Vice President Ryan Donovan.
The CFPB could tackle the issue without being pushed by Congress.
Bureau officials haven’t dropped any hints about what, if anything, they plan to do on interchange.
Richard Cordray, the bureau’s enforcement director and President Obama’s nominee to run the CFPB, didn’t mention it during his confirmation hearing last month.
Raj Date, the acting head of the bureau until it has a permanent director, spoke about the importance of transparent card fees but during a speech last month. However, he didn’t address interchange fees.
NAFCU Vice President Brad Thaler said his group plans to emphasize the fraud prevention and other costs that credit unions have to pay as the justification for not limiting interchange fees.
“The fraud prevention costs are well-documented. But there is another component when you are dealing with credit cards. The card issuer has the liability if the cardholder doesn’t pay. At the same time, merchants benefit because they are making a sale to someone who might not otherwise be able to afford it at the moment,” he said.
The National Retail Federation’s Duncan disputed that analysis.
“The fraud prevention concerns are overblown because the financial institutions should be doing a better job of risk assessment before issuing their cards. Also, If they have a fraud-prone product, consumers and retailers shouldn’t have to pay extra for that,” Duncan said.
He also rejects the argument that the higher charges by Bank of America and other big banks were the result of the Durbin Amendment.
“The higher fees are an effort by BofA to recoup some of the billions of dollars of losses from its Countrywide investment and an effort by other banks to recoup lesser losses stemming from their poor decisions,” he said.
CUNA’s Donovan said the negative effects of the Durbin amendment would weigh heavily on lawmakers before they attempted to regulate credit card interchange fees.
“You already are seeing buyer’s remorse among some lawmakers who supported the amendment,” he said. “That will cause them to think carefully before making the mistake again.”