NACS Member Calls on Congress for Swipe Fee Relief

Dave Carpenter tells members of the House Judiciary Committee that interchange "swipe" fees are the only cost of doing business that are non-negotiable.

April 29, 2010

WASHINGTON - U.S. House Judiciary Committee Chairman John Conyers (D-MI) held a hearing yesterday on H.R. 2695, the Credit Card Fair Fee Act of 2009. Conyers is the author of the bill, which seeks to create limited antitrust exemptions that would allow retailers to negotiate interchange rates with their banks.

"For small transactions, or transactions like gas purchases where the merchant is only making pennies in profit, the cost of accepting a credit card may wipe out the merchant??s profit," said Conyers in his opening statement. "As one merchant group observed, in some cases store owners would just be better off giving away items rather than accepting credit cards as payment.

"These charges have become the second-highest expense for merchants, below only the costs of paying their employees, with annual increases exceeding health care and energy costs."

Panelists included:

  • On behalf of NACS: Dave Carpenter, president of J.D Carpenter Companies Inc. in Urbandale, Iowa
  • Edmund Mierzwinski, consumer program director at U.S. PIRG in Washington, D.C.
  • On behalf of the National Association of Federal Credit Unions: John Blum, vice president of operations at Chartway Federal Credit Union in Virginia Beach, Virginia
  • On behalf of NACS, SIGMA and the Merchants Payments Coalition: Doug Kantor, partner, government affairs and public policy at Steptoe & Johnson LLP in Washington, D.C.

Carpenter testified first, noting that his role as an operator of six ShortStop convenience stores and as co-owner of a community bank, Liberty Banshares, puts him "in the unique position of understanding the effect that runaway card fees have on convenience stores, as well as the negligible impact of payment card operations on community banks' profitability."

He continued that the interchange market isn't free; that it??s "rigged to guarantee big money for the largest banking institutions, leave banks like mine the leftovers from their feast, and tighten the noose on businesses like ShortStop as much as they can without killing us."

Carpenter went on to illustrate how interchange "swipe" fees are the second-highest cost of doing business after payroll ?" higher than the cost of rent, utilities and health insurance combined. "Overall for the ShortStop chain, interchange fees have grown more rapidly and significantly than all of our other expenses. And we cannot control interchange fees the way we can control other expenses," Carpenter said.

Although Banshares issues Visa-branded credit and debit cards, Carpenter noted, "I disagree with the contention that efforts to bring interchange fees under control will harm community banks. Right now, we compete with other banks for customers on the basis of price and service. But there is no price competition on interchange fees, " he said.

Carpenter also noted that NACS delivered 2 million signatures from convenience store customers yesterday, asking Congress to bring fairness and transparency to a clearly broken system.

Mierzwinski, who for three years has appeared before the Judiciary Committee to testify on the issue of interchange fees, reiterated his "simple message" that the deceptive and anticompetitive practices of Visa and MasterCard "have injured both consumers and merchants for many years," and that interchange fees "are hidden charges paid by all Americans, regardless of whether they use credit, debit, checks or cash."

He noted that H.R. 2695 would create a structure "for the voluntary negotiation of interchange fees and, if agreement can not be reached, for the resolution of disputes about the amount of the fees." He continued that the bill is modeled in part after the Copyright Royalty Tribunal and "provides a mechanism for resolution of interchange fee disputes. We believe this would be a useful approach to addressing the concerns of the market power of the card associations and rapidly increasing interchange fees."

Blum, the lone dissenter of H.R. 2695 on the panel, testified that retailers reap "tremendous benefits" by accepting credit and debit cards, such as increased sales, fewer fraud losses and immediate payment for goods.

Blum stressed the importance of the current electronic payment and interchange structure to the credit union industry, noting that it allows them to compete with the larger banks.

"In 2009, Chartway processed over 15 million transactions worth in excess of $500 million dollars for more than 43,000 credit card users and 85,000 debit card holders. On average, Chartway made 15.8 cents on each transaction it processed last year. This interchange fee income is vital in allowing Chartway to offer credit and debit card services to our members," said Blum.

He also cited the cost of fraud losses: "On average, Chartway spends over $450,000 a year to cover fraud losses and insurance for fraud...My colleagues and I in the financial services industry find it particularly troublesome that merchants are seeking to reduce interchange fee income even as we suffer more and more fraud losses at the hands of thieves who access information through poorly protected merchant databases. If the Committee wants to help protect our nation??s consumers with this legislation, you should add provisions holding those who fail to protect sensitive data responsible for the full costs of any losses that they may occur as a result."

Kantor, the last panelist, noted in his written testimony that economists with the Federal Reserve Bank of Kansas City found that fraud costs "are not a justification for over-inflated interchange fees."

Kantor added that Visa and MasterCard have "pages and pages of rules for situations in which they can 'chargeback?? the amount of a transaction to the merchant. These chargebacks are so common that in actuality U.S. merchants absorb more of the cost of fraud each year than the banks that issue the cards." He cited a 2009 LexisNexis/Javelin Strategy & Research study that found that merchants absorb nearly 10 times the cost of fraud that the banks absorb each year.

NACS will provide additional coverage of the hearing in Friday??s NACS Daily and in the upcoming June NACS Magazine. And watch video coverage of NACS?? petition drive press conference and other credit card-related videos at nacsonline.com/nacstv.

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