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Credit Card Fee Bill Passes House Committee

Bipartisan majority votes to regulate interchange fees

By Martin H. Bosworth
ConsumerAffairs.com

July 18, 2008

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Legislation that would enable greater oversight of credit card interchange fees cleared an important hurdle, as the House Judiciary Committee voted to pass the bill on to the full House for a vote.

The Judiciary Committee voted 19-16 Wednesday to pass H.R. 5546, the "Credit Card Fair Fee Act of 2008," introduced in March by committee chairman John Conyers (D-MI). The bill would enable merchants and retailers to collectively negotiate interchange fees, the costs incurred when processing credit or debit purchases, with credit card issuers and major banks.

Nine Republicans joined 10 Democrats on the House panel to approve the bill, while eight Democrats and eight Republicans opposed it. Supporters of the bill, including the National Association of Convenience Stores (NACS), hailed the vote as a "strong show of bipartisanship."

"Now that Congress and the public are learning how credit card fees are driving up the price of gas, food and other necessities, the big credit card companies are in for a very rough ride," said NACS chairman Richard Oneslager.

Credit card issuers such as Visa expressed their continued opposition to the legislation. "H.R. 5546 remains an anti-consumer bill that would mandate unnecessary regulatory intervention into a fiercely competitive industry that is benefiting consumers, merchants, and financial institutions," said Visa general counsel Josh Floum.

The bill would require banks and merchants to negotiate interchange fees under the auspices of the Federal Trade Commission (FTC) and the Justice Department. An earlier draft of the bill would have required the negotiations to be transferred to a panel of three judges if an accord could not be reached, but Conyers removed the provision after objections from several House Democrats.

The current bill would instead increase the Justice Department's oversight power over the negotiations, and would enable credit unions and smaller banks that have less than $1 billion in collective assets to opt out of the agreement. The bill would also require both merchants and banks to pass on the benefits from fee increases or decreases on to customers and employees in the form of reduced prices or other payments.

Merchants have claimed that the interchange fees, which are set by the card issuers and banks and rise with the prices of goods, often wipe out any profit in a purchase made with credit or debit cards. The card issuers and banks work together to set the fees, retailers claim, using their market power to collude and force merchants and retailers to accept their terms.

A coalition of retailers and merchants have filed a class-action lawsuit against Visa and MasterCard, as well as many major banks, claiming that the financial industry is engaging in anticompetitive behavior and forcing the merchants to pass on the costs of interchange fees to customers in the form of higher prices. The call for new regulation of the fees led to hearings on Capitol Hill in March

Just prior to the Committee's passage of the bill, NACS teamed up with the Service Employees' International Union (SEIU) and other retail associations to send letters to every member of the House demanding action on H.R. 5546 and other legislation that would restrict the more abusive practices of the credit card industry.

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