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The Food Marketing Institute (FMI) and the Merchants Payments Coalition were among the groups that lauded the introduction of U.S. Senate legislation last week to create a competitive and transparent market for setting credit card transaction fees, especially the hidden interchange fees, which alone are projected to cost retailers and ultimately consumers nearly $50 billion this year.
Sen. Richard Durbin (Ill.), the second-ranking Democrat, introduced the measure, titled the Credit Card Fair Fee Act of 2008. The legislation is a companion measure to a U.S. House of Representatives bill with the same name (H.R. 5546). House Judiciary Committee Chairman John Conyers and Rep. Chris Cannon (R-UT) introduced this measure; all together, 37 representatives have signed on to it, including 20 Democrats and 17 Republicans.
The legislation applies to electronic payment systems that account for at least 20 percent of the annual credit and debit card dollar volume. Only the Visa and MasterCard systems currently hold this market share.
“This law gives retailers a seat at the table to negotiate fair and reasonable transaction fees with credit card companies,” said John J. Motley, III, FMI s.v.p. of government and public affairs. “It would put an end to the anti-competitive and anti-consumer system in which the credit card company networks fix these fees in secret with impunity.”
Credit card companies extract these fees from every single plastic transaction, averaging more than 2 percent. In the end, all consumers pay for these fees -- whether they pay by plastic, cash or check -- because card company rules effectively force retailers to build them into the price of all goods and services, according to FMI.
The cost of interchange fees has tripled since the beginning of this decade, from $16.6 billion in 2001 to a projected $48.8 billion this year, according to the Merchants Payments Coalition and data from The Nilson Report.
The legislation would require a committee of merchants and representatives of card companies and banks to negotiate fees for debit and credit card transactions. The committee would negotiate which costs the fees should cover, such as computer processing, communications, and system maintenance, and which would also provide financial institutions a reasonable rate of return. If the negotiators cannot reach an agreement, the decision moves to binding arbitration.
FMI is a leading member of the Merchants Payments Coalition, a group of nearly 100 associations representing retailers, supermarkets, drug stores, convenience stores, fuel stations, online merchants, and other businesses that accept debit and credit cards.