To answer the question posed by the title of today's hearing, there are indeed crucial antitrust issues raised by interchange fees, nationally known antitrust attorney W. Stephen Cannon said. "The collective setting of interchange fees represents on-going antitrust violations by the two leading payment card associations - Visa and MasterCard - that cost merchants and American consumers tens of billions of dollars annually. Hidden from consumers, these fees are in addition to the late fees, over-limit fees and other card fees with which consumers are only too familiar."
Cannon is scheduled to testify on behalf of the MPC when the Judiciary Committee holds a hearing on "Credit Card Interchange Rates: Antitrust Concerns?" this morning in Washington. Cannon, currently president of the New York and Washington-based law firm Constantine Cannon, is former chief antitrust counsel to the Judiciary Committee, a former deputy assistant attorney general in the Justice Department's Antitrust Division and former general counsel of Circuit City Stores Inc.
Formed last year to address rising interchange fees, the MPC's member associations collectively represent about 2.7 million stores with approximately 50 million employees.
In remarks prepared for delivery at the hearing, Cannon argued that the banks that make up the Visa and MasterCard networks engage in price fixing that violates federal antitrust law when each network sets its interchange rates. In doing so, the banks effectively operate as a cartel, a practice long recognized by antitrust courts as anticompetitive regardless of prices set, he said. In addition, the 1986 NaBANCO decision often claimed by Visa and MasterCard as a defense against antitrust allegations is based on factual assumptions no longer relevant to the marketplace, and the ruling's findings also have been undercut by more recent court decisions, he said.
Cannon also said Visa and MasterCard rules requiring that interchange fees be built into the price of merchandise make it virtually impossible to disclose the fees to customers, and argued that the fees amount to a hidden tax on the economy.
"The average consumer has no idea that this fee is imposed every time they make a purchase," Cannon said. "Interchange acts as a hidden sales tax on U.S. commerce, raising both merchant costs and ultimately the price of goods and services sold to consumers."
In addition to Cannon, the committee is also scheduled to hear from two retailers, Bill Douglass, CEO of Douglass Distributing, based in Sherman, Texas, and Kathy Miller, owner of the Elmore Store in Lake Elmore, Vt., about the effect of the interchange fee system on their businesses. Douglass will testify on behalf of the National Association of Convenience Stores while Miller will testify on behalf of the Food Marketing Institute. FMI and NACS are members of the Merchants Payments Coalition Executive Committee.
"Every American is a victim in this credit card price fixing scheme that increases prices on nearly every consumer purchase," FMI President and CEO Tim Hammonds said. "This scheme costs consumers more than $26 billion a year, and is hidden from consumers by a complex web of take-it-or-leave-it agreements forced upon merchants by Visa and MasterCard. We are very pleased that the Senate Judiciary Committee has taken this important step to shine the light of disclosure on this issue."
Interchange is a percentage of each transaction that Visa and MasterCard banks collect from merchants every time a consumer uses a credit or debit card to pay for a purchase. The fee varies with type of card, size of merchant and other factors, but averages close to 2 percent for credit card transactions.
Total credit and debit card interchange collected by Visa and MasterCard amounted to $26.3 billion in 2004, according to the Nilson Report, a newsletter that covers the credit card industry. The figure is up 58 percent from $16.6 billion in 2001.
Interchange has emerged as a major public policy concern around the world. Antitrust authorities across Europe and in Australia - major U.S. trading partners with nearly identical economic systems - have condemned Visa and MasterCard's collectively set fees and rules as anti-competitive and have moved to bring interchange under control at a time when they were already significantly below the average interchange rate in the United States.
The Merchants Payments Coalition is a group of about 20 trade associations representing retailers, restaurants, supermarkets, drug stores, convenience stores, gas stations, on-line merchants and other businesses that accept debit and credit cards. MPC is fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition's member associations collectively represent about 2.7 million stores with approximately 50 million employees.
[Source Merchants Payments Coalition]