Battle Against Credit-Card Fees
Douglass, others call for a solution to interchange rates
WASHINGTON -- After noting that interchange fees set by credit-card companies are necessary to make them profitable to the third- and fourth-party banking institutions that issue the cards, Joshua L. Peirez, group executive of global public policy and associate general counsel for MasterCard Worldwide, implored the U.S. Senate Judiciary Committee not to regulate those fees as a matter of the free-market economy.
Soon after, retailers, including Bill Douglass, CEO of Douglass Distributing Co., who spoke on behalf of NACS, got to give Peirez and [image-nocss] the members of the committee an earful on what interchange fees mean to them. These fees are a terrible burden for my customers and most of them do not even know these fees exist and take money out of their pockets, Douglass said yesterday during a committee hearing dubbed Credit Card Interchange Rates: Antitrust Concerns? These charges are an outrage, especially at current gasoline prices.
During his testimony on Capital Hill, Douglass called the issue a dire situation and shared what the interchange fees add up to for an average gasoline consumer.
For many of our customers, that is nearly $2 per fill up that goes straight to Visa and MasterCard banks, he said, adding that the fees also make it difficult for retailers to remain competitive. I compete with other retailers to try to make my prices attractive to customers. But when these fees are tacked on, prices don't look as attractive. This is a big problem in my industry. We put our prices on the street for everyone to see. No other industry so completely and transparently empowers customers to shop for the best price without even leaving their cars.
Kathy Miller, owner of the Elmore Store in Lake Elmore, Vt., agreed with Douglass. She spoke on behalf of the Vermont Grocers Association and the Food Marketing Institute, but also has two gas pumps at her store.
When the price of gas goes up, so does the amount of interchange we pay. Because the fee is a percentage rate plus a flat fee, the banks make more and I must pay more, even though their costs for processing the transaction are still the same, she said. Last year in our store, 2005, we did $58,500 worth of plastic transactions. The credit-card fees to us (out-of-pocket) were $4,400. Each time a customer swipes their card it costs us, 2.65% + 20 cents per sale. For example, if we sell $10 worth of gas, we make 49 cents and pay credit-card fees of 26.5 cents + 20 cents. Or if a bicyclist stops for a bottle of water, it costs 23 cents to swipe the card. You do the math; it hurts.
Attorney Stephen Cannon, speaking on behalf of the Merchants Payments Coalition, of which NACS is a member, requested the committee do something to regulate credit-card fees or to expect antitrust litigation against credit-card companies to continue well into the future.
It is beyond dispute that consumers, merchants and the payment-card industry all need each other. In today's world, none could function without the others. In the not too distant future, we would like to think that a well-reasoned solution is possible, he said. In the absence of such a solution, consumers and merchants will continue to press their claims in the courts, here in Congress and, not surprisingly, to anyone who may be able to give them relief from this illegal, pernicious practice. By the same token, the payment-card associations will continue to steadfastly deny any wrongdoing and instead tout the benefits of their services to merchants and consumers alike and, of course, seek any shelter from this storm they have had now faced for over a decade.
To read the complete transcripts of the hearing testimony, click here.