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WASHINGTON -- The Food Marketing Institute and other industry trade groups turned up the volume in their fight to expose the costly interchange fees charged by credit card companies and their member banks.
FMI president Tim Hammonds was among the officials who submitted testimony to the U.S. House of Representatives Energy and Commerce Subcommittee on Commerce, Trade, and Consumer Protection.
"This was another big step in the educational process of making Congress aware of the reforms that are needed in interchange fees," Bill Greer, FMI's director of editorial services, told Progressive Grocer. He noted that this is currently a top issue among FMI's board members.
Other industry groups that submitted testimony yesterday included the National Association of Convenience Stores and Merchants Payment Coalition, of which FMI is a member.
Arguing in favor of the credit card companies were Karen Kerrigan, president and c.e.o. of the Small Business & Entrepreneurship Council; and Timothy J. Muris, a former Federal Trade Commission chairman who has consulted with Visa U.S.A. on a variety of antitrust and consumer-protection issues. Muris spoke on behalf of the Electronic Payments Coalition.
During the hearing, FMI's Hammonds noted that the supermarket business model has changed dramatically in the last 25 years, while at the same time shoppers' purchasing patterns have changed. "The majority of our customers now choose to pay for their purchases using credit or debit cards," Hammonds said. "Our industry has responded to our customers with over 95 percent of our members now accepting credit and debit for payment." Yet the "plastic card world" does not work in the low-margin, competitive supermarket business model, said Hammonds.
For credit card companies, the volume of transactions has grown dramatically providing economies of scale; interest rates continue at historically low levels providing lower operating costs; and technology continues to improve, also lowering operating costs, he argued. "But at the same time we have seen the rates fees charged by credit card companies explode," Hammonds testified. "Fees paid by FMI members to the card companies have increased roughly 700 percent over the past 10 years as a result of this combined growth in rates and volume."
In 2004, Visa, MasterCard, and their member banks collected $27.6 billion in interchange fees, according to FMI.
FMI and the other groups maintain that if consumers had full information on the rates and fees associated with their plastic cards, they would be outraged. Merchants are prohibited from disclosing these fees, but the fees must ultimately be reflected in the retail price of every product consumers buy, said Hammonds.
Hammonds suggested the following as possible solutions to the problem:
-- Require the card companies to disclose their operating rules on a Web site and file a copy with the Federal Trade Commission.
-- Card companies should be required to charge a fair price that reflects the actual cost of their services, but should not be allowed to subsidize the expensive marketing programs and promotional schemes that benefit only the most privileged few.
-- Allow competition to develop within the system.