Wednesday, February 15, 2006

Lawmakers Hear More Interchange Arguments (Cardline)

Representatives of retailers and electronic payment groups testified for and against government interchange restrictions before the U.S. House Subcommittee on Commerce, Trade and Consumer Protection today.

Henry O. Armour, president and CEO of the National Association of Convenience Stores, testified that convenience store owners see a few basic operating rules when they sign agreements with acquiring banks to accept Visa and MasterCard but are kept in the dark about most rules until they break them and receive chargebacks or higher interchange fees.

For example, contracts merchants sign with acquirers stipulate that they aren't supposed to set minimum or maximum purchase amounts for credit card use, but the full operating agreements that they aren't allowed to see include maximum purchase limits for gasoline. Those hidden rules lead to chargebacks, he said. "The merchant can't restrict, but Visa and MasterCard reserve the right not to pay you if it's over $50 [for gasoline]," he said.

Armour wants the subcommittee to press Visa and MasterCard member banks to provide full copies of operating rules to lawmakers studying interchange fees. He said retailers in the U.S. should see lower interchange fees than elsewhere, since they generate the most transactions in the world and maintain one of the lowest fraud rates.

Edward Mierswinski, consumer program director of the U.S. Public Interest Research Group, advocated more studies of merchant and cardholder rules, interchange and how interchange cost is shared by consumers. "I personally don't think that Joe Cash Customer, who can't afford a bank account, should be paying for Jane Frequent Flyer Miles," he said. "The rules [issuers] give to consumers are 'we can change the rules any time we want for any reason, including no reason.'"

Representing the Electronic Payments Coalition, former Federal Trade Commission Chairman Timothy J. Muris, now an attorney with O'Melveny & Myers LLP in Washington, called merchant claims of price fixing disingenuous. "What the merchants want instead is a price fix, but a price fixed at a lower amount," Muris said. He also argued that individual retailers negotiate a variety of interchange fees with their acquiring banks, so prices aren't really fixed.

Ranking minority member Rep. Janice Schakowsky (D-IL), appeared to agree with Armour and Mierzwinski that interchange fees are too high and affect consumers adversely. "Whatever the courts decide, I think it's our committee's responsibility to make sure that consumers are not saddled with more fees."

Others, such as Rep. Michael Ferguson (R-NJ), expressed a general distaste for price controls. "I'm suspicious of governments telling markets how much to charge," Ferguson said. Most committee members who spoke seemed sympathetic to, or at least intrigued by, Armour's assertion that retailers should have more complete access to the rules that govern their interchange fees and chargebacks and be able to freely communicate card costs to customers. "I believe in transparency, so consumers can decide what [payment methods] are right for them," Ferguson said.

[source: Cardline]