Consumer Ripoff? H.R. 2382: Credit Card Interchange Fees Act of 2009

[WhiskeyGirl]

H.R. 2382: Credit Card Interchange Fees Act of 2009

I happened to catch CSPAN the other day for part of this debate.  I really didn't know what an interchange fee was.  I was shocked when I did a little research.  It's almost like a hidden tax for the goods and services folks buy using a credit card.  It makes it harder for small local businesses to compete and stay in business.

What happened to the change that was going to be for the little people?  Responsible regulation?  I look at the fallout from the the first round of Consumer Protection legislation (anxious friends and family) that passed earlier this year and wonder  how is this protection? 

Was the earlier bill written by the banks?  Unlimited interest, fees, payments...  The only thing consumer oriented seemed to be that the banks had to tell you of changes.  I don't think it's working to benefit consumers.

What did work?  From memory, in the olden days, STATES regulated the maximum interest rate banks could charge for credit cards, late payments, interest on loans, etc.  There was an incentive to only offer credit to people who had the capacity to pay back the money they borrowed.  There was NO TAXPAYER bailouts or guarantees.

Banks make oodles on Obama Consumer protection legislation, consumers get the shaft - my opinion.  Someone who may have been able to pay say $400 a month now gets a bill for over $1,200.  What to do?  Not a lot of options for everyone. 

No protection I can see, just banks starting to look like good old fashioned loan sharks.

Interbank Fee reform and fairness.  Apparently, some folks in the House would like to regulate these fees and make the cost of credit available to consumers. 

Here is a brief description of the bill "To amend the Truth in Lending Act to prohibit unfair practices in electronic payment system networks, and for other purposes."

Read the bill here - http://www.govtrack.us/congress/bill.xpd?bill=h111-2382

It seems like the merchants on Main Street may get the shaft when folks use their card for petty things.

"Vt. Retailers: Credit Card "Swipe Fees" Can Wipe Out Profits"

"The other day we had somebody swipe their card for a 35 cent pack of gum," store owner Warren Miller said. "Well, the credit card company made 21 cents on that transaction. We lost 7 cents on the transaction."

     And those fees add up, especially as more people use plastic instead of cash. When the Millers bought the store 26 years ago, Warren says he had one or two credit card transactions a month. Now, they account for about 40 percent of his sales every day.

     "Our credit card sales have gone up 52 percent in three years and our swipe fees have gone up accordingly. Our fees are between $3000 and $4000 a month," he said. "It's huge. Our power bill is $1000 a month. Our taxes are $1000 a month, so it's big."

http://www.wcax.com/Global/story.asp?S=11288608#

It looks like another hidden banking tax on consumers.  Any of this money going to pay back the national debt?  

There was a smirky politician who used the example of buying his daughters birthday cake - the bakery only accepted cash.  Suggestions the merchants should just stop accepting credit.  In my mind, a business selling a once a year item like a birthday cake is different from the place that sells groceries, gas, and other products that folks use every day.

The merchants are forbidden to offer a discount for cash paying customers, or charging the difference those who use credit.  I'm not sure a merchant has any idea HOW MUCH a consumer's credit card will scalp off the top of the transaction.  Apparently, all that cash back and rewards are paid for through these fees.  Could a merchant lose 2%?  5%?

Why shouldn't consumers know and pay for the price of the credit they use?  It seems reasonable to me that if they pay cash they should get the best price.  If you want to use a card that takes 5%, they maybe should should pay that adjusted 5% above the cash price.

Hmmm...you didn't get a 5%, or even a 3% raise this year, but the bank did...

How much does the price of credit add to everyone's market basket?  It seems like those paying cash are paying the price of credit to.

Another point - about 80% of these interbank fees go to just 10 large banks, many of which apparently were TARP recipients. 

Mr. Smirky asked Mallory Duncan (of a retail organization, giving testimony) if anything prevented him or others from setting up a new card or interbank.  How would Mr. Duncan be an expert?  I can think of a lot of things.

I would relate this to the old Ma Bell, before the breakup.  Lots of laws preventing anyone from competing, or selling phone products.   Even after the breakup, how many start-ups could put up competing phone lines?  Build their own interstate/international network?  Ma Bell got a lot of government support in the early days to grease the wheels of progress.

Here is the testimony of Mallory Duncan from 2007 for a similar bill - http://www.unfaircreditcardfees.com/uploads/Mallory_Duncan_Written_71907.pdf

"The collective setting of interchange fees by Visa and MasterCard represents an on-going antitrust violation and it costs merchants and their customers—that is, America’s consumers—tens of billions of dollars annually. These fees, hidden from consumers, are in addition to the late fees, over-the-limit fees, and other card fees with which consumers are only too familiar. This Task Force has an important perspective on this issue. The problems with interchange fees stem from basic antitrust law and competition policy issues with which this Committee is familiar. We hope that this hearing will be the first step in a thorough exploration of these issues by the Task Force."

Mr. Smirky asked why they don't pursue more antitrust violations through the courts.   Answer?  It takes YEARS.  How do you fix a violation that happened over the past twenty years?  Why not fix the problem going forward?

"Visa and MasterCard are able to get away with this, however, because they have market power – both individually and jointly according to the courts. By a very conservative estimate, Visa and MasterCard together control more than eighty percent of the credit card market. The vast majority of merchants therefore have no choice but to accept their cards. In fact, a recent study by the Kansas City Federal Reserve Bank concludes that merchants realistically cannot refuse to accept Visa and MasterCard payment cards, regardless of interchange fee costs."

I wonder how many of these banks got TARP money?

“There is an arms race to create cards with higher fees and more bells and whistles,” NRF Senior Vice President and General Counsel Mallory Duncan said. “The market checks that would normally exist to curb this escalation in fees are diminished because the card companies know that every merchant is required to take these expensive new cards or lose their ability to accept any cards. The Welch-Shuster bill would allow the most expensive cards to be refused, and while we expect that few merchants would actually refuse cards if this were passed, it would make the card companies think before they reflexively introduce cards with higher fees.”

“Most consumers don’t know it, but every time they swipe a rewards card with its miles and concierge services, they are driving up the price of everything they buy even higher,” Duncan said. “This particularly hurts less-privileged Americans who don’t have rewards cards or can’t get cards at all because Visa and MasterCard rules effectively require that everyone pay the credit card price even if they are paying with cash, check, debit card or even food stamps.”

http://www.pr-inside.com/nrf-testifies-that-credit-card-companies-r1518875.htm

Why isn't the banking system working for Main Street?

Wow, what a deal.  The more we use plastic, even debit cards, the more the banks make.  To big to fail!!!

How many of these 'to big to fail' big banks outsourced their backoffice and IT functions to places like India?  Do any of these banks benefits Americans?  They make wealth for a few, provide jobs to foreign countries, and get bailouts from taxpayers.  What value do they add to the American way of life?

Taxpayers are getting the shaft.

my opinions.

[WhiskeyGirl]

Another point I looked up, the position of Ann Duplessis of Liberty Bank in New Orleans, representing the "Independent Community Bankers of America"

According to OpenSecrets blog, this organization, in total lobbying income -

2006  $1,563,118

2007  $3,428,985

2008  $4,210,000

2009  $2,540,000 (not complete)

from this site http://www.opensecrets.org/lobby/firmsum.php?lname=Independent+Community+Bankers+of+America&year=2009#

That's a lot of money.  A drop in the bucket for bankers, a dream denied to those on Main Street.

jmho

[WhiskeyGirl]

Visa issued a press release Thursday morning saying its average interchange rate is 1.62% of the sale, and hasn’t changed for a decade. “Unfortunately H.R. 2382 is nothing more than a renewed effort by lobbyists representing some national retailers and trade associations to shift the normal cost of business onto consumers, while retailers continue to reap the benefits electronic payments offer and pad their profits,” Visa's statement said.

There is an easy way to get the best price for consumers - a base price for cash, and a separate, variable price for credit.

I recall that the big warehouse clubs used to have a base price plus maybe 2% for the basic membership.  Premium memberships just paid the base price.

If consumers can understand that, why not a base price, plus an additional amount to cover the merchant cost of using credit?

At least two other interchange bills also are pending in Congress. Convenience-store giant 7-Eleven last week presented petitions with nearly 1.7 million customer signatures asking Congress to regulate interchange (Digital Transactions News, Sept. 30).

I wonder how the interchange charges squeeze the small family owned 7-Eleven businesses?

http://www.digitaltransactions.net/newsstory.cfm?newsid=2342

[WhiskeyGirl]

What do other global consumers pay for swipe fees?

Duncan spoke during a press conference held by the Merchants Payments Coalition to release its 14-page report, entitled, “’Swipe Fee’ Reform--International Lessons.” The MPC, also based in Washington, was formed by retail trade groups in 2005 to lobby in favor of interchange regulation. In the report, the MPC shows the U.S. with the highest interchange among 15 countries or regions compared, at 2%. New Zealand, Australia, and the European Union, all of which have acted to regulate interchange in one way or another, are shown at 0.95%, 0.50%, and 0.30%, respectively.

...the MPC says that consumers in the U.S. would have saved $125 billion over the past four years had the same regulation been imposed here as was imposed in Australia. In 2003, the Reserve Bank of Australia capped interchange at an average of 0.55%, about half what it had been. “The result is consumers [in Australia] have saved money in the billions of dollars, there’s more competition, consumers pay lower fees for credit cards, and the economy has benefited, all while credit card transactions have gone up,” said Douglas Kantor, counsel to the MPC, during the press conference.

Why aren't lower fees good for the American economy?  Who do higher fees benefit?  Banks?  TARP recipients?  Taxpayers?

http://www.digitaltransactions.net/newsstory.cfm?newsid=2324

Why do American businesses pay more?  Why don't Americans pay say .3%? 

Should Americans know how much credit costs them directly and indirectly?  Should they be allowed to compare rates?  Save more by paying cash?

[WhiskeyGirl]

How much do interchange fees cost? $48 billion a year, according to the Merchant Payments Association, a coalition of mostly retail trade associations lobbying to restrict the fees. How much do merchants pay? To put that in perspective, Home Depot pays more in interchange fees than for employee health care. Some of those costs get passed on to consumers.

http://www.businessweek.com/smallbiz/running_small_business/archives/2009/10/merchants_seek.html

Maybe there is a way to pay for healthcare in this nugget.   

[WhiskeyGirl]

It's not just the spending and debt, it's the little things that kill Main Street.

Why doesn't small business pay a fair fee?  It seems like other nations look out for their small businesses, but for some reason, Washington and the White House look out for bank profits.

Sure, Obama wants a small tax on loans...

Why not give small business a break?

Just a few banks control all these networks.  In the olden days, just Ma Bell controlled your phone.  There was no innovation.

Why not let everyone compete?

Why not lower the amount skimmed off the top of every transaction?  Transaction fees that kill Main Street and taxpayers?  Stifles competition?

[klaasend]

It appears Obama wants to give small business a break afterall 

[WhiskeyGirl]

It appears Obama wants to give small business a break afterall 

I don't think it's a break for small business.  When I read up on these articles, big businesses, big retails get very low fees, while small business can be charged anything.  I do not recall a limit.

I watched some of this on CSPAN.  Small business can be charged 8% or more for the same transaction.  That's hard on businesses that only make a 2% profit.

It cost them more to accept credit and debit cards.  I remember some merchants telling them they get charged 8% and have to sign agreements with credit card machine vendors not to disclose how much the fees are to consumers, not to charge more for credit, or less for cash.

I'm not sure the Obama Consumer bill protects the consumer or ensures the profits of big banks.

Why not break up the monopoly the few big banks have on the transfer fees?  Give access to the little community banks?

This was done to Ma Bell many years ago.  Today, we have lots of innovation and cheaper rates for long distance calling and many other phone / data related services.