"The purpose of today's hearing is to examine H.R. 2695, the "Credit Card Fair Fee Act of 2009.
"Cash transactions are becoming a thing of the past. America has about 300 million people, and almost 600 million credit cards in circulation. Think about that. That comes out to just about two cards for every man, woman, and child in this country.
"Every day and many times [image-nocss] a day, a customer walks into a corner store and uses a credit card to buy a candy bar or a bag of chips. Credit cards certainly are a convenience you can walk around without a dollar in your pocket so long as you have a credit card. But they come with a cost, for both merchants and consumers.
"Today's hearing will explore one of these costs, interchange fees, and how we can ensure that they are set and applied fairly. I hope our witnesses will address three central questions in this debate:
"First, what is the impact of credit card interchange fees on merchants?
"Every time a person uses a credit card, the bank charges the retailer's bank an interchange fee. On top of that, the merchant pays an additional fee to its own bank. It may look like just a little bit here and a little bit there, but it adds up to almost $50 billion a year.
"Now, only a small part of this fee is needed to cover the actual cost of the transaction plus a reasonable return on investment. Another part of it goes to credit card rewards programs. And the rest of it flows to the bottom line of the bank.
"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. 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.
"Second, what is the impact of credit card interchange fees on consumers?
"We know that higher interchange fees result in higher prices for consumers. And we know that part of interchange fees are used to cover the costs of rewards programs, which reward a few consumers at the expense of the many. For every person who gets extra airline miles by using a credit card, many more are paying higher retail prices and getting nothing in return.
"A study recently released by the Hispanic Institute found that the credit card interchange fee structure transfers billions of dollars from lower-income, minority consumers to higher-income, non-minority consumers. In groceries and gasoline alone, the transfer of wealth amounts to somewhere between $1.4 billion and $1.9 billion.
"By extracting profits out of the wallets of consumers through interchange fees, the banks are earning exorbitant profits for themselves and their CEOs. Can you blame them for sending out millions of flyers for new credit cards, and issuing them to people with questionable credit? The more cards that are out there, the more interchange revenue. The more purchases they can convince people to make using cards, the more interchange revenue.
"Banks and credit card companies are skimming money not only off ordinary consumer credit card transactions, but off everything they are making somewhere around $250 million a year just off credit card donations to charities alone.
"In the wake of the devastating earthquake in Haiti, the nation's largest payment networksVisa, MasterCard, American Express and Discoverwere siphoning off up to 3% in transaction fees for charitable donations. Only after sustained public outrage did these payment networks announce that they would waive fees for some contributions to Haiti. Unfortunately, interchange fees are still being siphoned off shamelessly from other charitable donations.
"Third, how do we address the inequities in the interchange system for merchants and consumers?
"The legislation before us today would level the playing field between small merchants and big banks. It creates a "one-shot reset," using a temporary antitrust exemption to allow banks and card networks and retailers to all sit down and try to negotiate fair interchange rates.
"Critics of the legislation say we are interfering with the free market. But even leaving aside whether this argument has any basis and I believe it does not I would like to point out that Visa and MasterCard have previously been found to be violating the antitrust laws. So is it fair for someone who broke the rules to get to the top of the mountain to turn around and say, okay, now that we are here, we want everyone to start playing by the rules?
"Critics of the legislation have also questioned whether consumers will ultimately benefit if this bill is enacted. I have heard people say that without a pass-through mandate, this bill will only make the retailers richer. We looked at that carefully in the last Congress, but we ultimately concluded that it created more problems than it solved.
"Besides, retailers are out there in the marketplace competing. They simply don't have the ability to pocket the savings as a quiet windfall. They will be under plenty of healthy competitive pressure to use part of it to lower prices or improve service to attract more business.
"Any reduction in interchange fees as a result of this bill will benefit consumers. Economics 101 says that in a competitive market, excess profits get competed out and prices are driven down close to cost.
"Is there anyone here who doesn't think that convenience stores operate in a competitive market? That CVS, Macy's and corner grocery stores don't have competition from other stores in their cities?
"Now, consumers might see the benefits in different ways. Stores that compete on price will take the opportunity to undercut their competitors. Stores that sell service may use any break in interchange fees to add more sales representatives. But rest assured, in a competitive retail environment, this bill is a winner for the consumer.
"As Congress debates Wall Street reform this week, H.R. 2695 should clearly be part of the discussion."
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