Missouri's 7th District, U.S. House of Representatives




Congressional Issues 2010
Interchange Fees

This column is from the "Merchants Payments Coalition,"
This page is intended to provide some brief background on the issue of credit card companies' fees and practices for you in advance of your response to the four question survey that follows.  
Household debt rose last year to 132% of disposable income. And, for the first time since the Depression, the personal savings rate of Americans has dropped below zero.*  
Taken together, these two facts mean Americans, on average, are spending more than they are earning.*  
Moreover, hourly wages have fallen 2%,** even as gasoline prices have risen 20% in the last year.***  
Rising household debt reflects rising credit card debt, which in turn follows from rising interest rates as well as higher credit card fees.  
The largest credit card fee is one most consumers have never heard of. It is called the interchange fee and it is the largest credit card fee of all.  
The interchange fees paid on VISA and MasterCard transactions were more than $26 billion in 2004 and more than $30 billion last year; by comparison credit card late fees were $16 billion.  
In recent years, interchange fees charged to merchants and ultimately paid by consumers have increased dramatically, not only because credit card companies have pushed the use of plastic on small purchases such as at fast food restaurants, but also because the fees keep going up whether by rate increases set by VISA and MasterCard or the marketing tactics they use to incent consumers to use cards that cost merchants more in fees.  
The credit card interchange fee gets charged to merchants and, by extension, to consumers every time someone uses a credit or debit card. The fee varies but it averages close to two dollars on every hundred dollars of goods and services purchased as it is reflected in the cost of everything consumers buy even when they pay by cash, check, or debit.  
Visa and MasterCard set interchange fees in meetings with bankers not open to either merchants or the general public.  
The Senate Judiciary Committee, chaired by Senator Arlen Specter, held antitrust hearings on July 19 to begin an examination of whether Visa and MasterCard have undue market power and fix prices in the United States in violation of antitrust laws.  
Visa (and MasterCard) member banks collectively set interchange fees and also agree to charge the same fees. This collective price fixing appears to be a classic antitrust violation and is a major reason why these fees keep increasing.  
Another reason interchange fees may be increasing is that it helps fund credit card company marketing practices, such as direct mail solicitations and television commercials. These solicitations are aimed at virtually all consumers but are particularly targeting new users such as teenagers and college students.  
Similar to the way credit card companies treat consumers in terms of late fees, balance transfer fees, and over-the-limit fees, merchants are largely kept in the dark about the rules governing interchange fees, policies and practices.  
In fact, every American merchant, as well as all American consumers, pay, on average, the highest interchange fees in the industrialized world, twice what British consumers pay and three times what Australians pay.  
Recently the European Community issued a report finding credit card interchange fees as “penalizing to business and consumers but also damaging Europe’s competitiveness.”****  
*Labor Department economic analysis recently released in September and as reported in the New York Times on September 3, 2006.
**Labor Department economic analysis as reported in the Washington Post on September 5, 2006.
***AAA, as reported in the Washington Post on September 5, 2006
****European Commissioner for Competition Policy, Payment cards competition inquiry – preliminary results, Introductory remarks at press conference, Neelie Kroes, Brussels, 12th April 2006.

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