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Sen. Richard Durbin of Illinois, the second-ranking Democrat in the Senate, yesterday introduced legislation aimed at creating a truly competitive and transparent market for setting credit card transaction fees, particularly hidden interchange fees, which alone are estimated to cost retailers and subsequently consumers almost $50 billion this year. The measure, known as the Credit Card Fair Fee Act of 2008, was applauded by the Food Marketing Institute and the National Retail Federation.
The bill applies to electronic payment systems accounting for at least 20 percent of the annual credit and debit card dollar volume. Only the Visa and MasterCard systems now 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 FMI s.v.p. of government and public affairs John J. Motley III. "It would put an end to the anticompetitive and anti-consumer system in which the credit card company networks fix these fees in secret with impunity.
Motley noted that Americans pay some of the highest fees in the developed world, while competition, economies of scale, and decreasing computer and communications costs should make U.S. fees the lowest. He attributed this state of affairs to "the absence of competition in a market controlled by two credit card networks."
"The introduction of this bill shows momentum is building in Congress, and that both the House and Senate are ready to bring the credit card companies' greed under control," noted NRF s.v.p. and general counsel Mallory Duncan. "This is a fee most consumers don't even know about, but it's the equivalent to half a dozen tanks of gas or a month's worth of groceries. If consumers knew how much they were paying for credit cards, most would say it isn't worth the price, particularly in today's economy."
The newly introduced 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 work out which costs the fees should cover, including computer processing, communications, and system maintenance, and which would also provide financial institutions a reasonable rate of return. If the negotiators are unable reach an agreement, the decision moves to binding arbitration.
"Negotiation is important because these fees are set behind closed doors and imposed on a take it or leave it basis," explained Duncan of the NRF. "This bill would give retailers the opportunity to negotiate terms on behalf of themselves and their customers that reflect the actual cost of the services provided, rather than credit card companies' attempt to reap windfall profits from soaring prices."
FMI is a member of the Merchants Payments Coalition, a group of almost 100 associations representing retailers, supermarkets, drug stores, convenience stores, fuel stations, online merchants, and other businesses that accept debit and credit cards. The coalition is pushing for a more competitive and transparent card system in which interchange fees are based on actual transaction costs.
The Senate legislation is a companion measure to a U.S. House of Representatives bill with the same name, which has been signed on to by 37 representatives have signed on to it, both Democrats and Republicans.
FMI's retail membership is made up of large multistore chains, regional firms and independent supermarkets. Its international membership includes 200 companies from more than 50 countries. The group's associate members include the supplier partners of its retail and wholesale members.