MONTPELIER, Vt. -- Legislation under consideration in Vermont stems from an effort by a national organization working to draw attention to fees credit cards charge merchants. The state legislation, titled the Vermont Credit Card Disclosure Act of 2008, is being supported by the Merchants Payments Coalition Inc. (MPC), said The Burlington Free Press.
The proposed state law would mandate credit card companies supply a "complete paper copy" of fee rules to each merchant. The legislation, advocates said, would not lower the fees but would raise awareness on the issue and help businesses anticipate [image-nocss] expenses.
The MPC—which represents 2.7 million stores—provided the Vermont Grocers' Association (VGA) with legislative language from another state that resulted in the Vermont legislation, VGA president Jim Harrison told the newspaper. Similar legislation is pending in several other states, the national group said.
David Tomczak, owner of Ethan Allen CITGO in Burlington, Vt., stopped taking American Express within the past five months because the fees were becoming too high, said the report.
Merchants are upset over interchange fees, which they must pay to credit-card companies on each transaction. The fees average about 2% of the total transaction, but business credit cards and rewards cards, which give card holders frequent-flier miles or cash back, charge merchants more. "The interchange fee helps prop up the cost of the rewards program," Tasha Wallis, executive director of the Vermont Retail Association (VRA) told the paper. The fees have increased over the past eight to 10 years, she said. Debit cards also have a fee, but it is generally a flat rate that is cheaper for merchants.
As credit card and debit card use rises, merchants say profit margins are being squeezed. Jim Lombard, manager of Chuck's Mobil Mart in Winooski, Vt., told the Free Press that fees the station pays credit companies can be more than $200 a day.
Chris D'Elia, president of Vermont Bankers Association, who testified before the House Commerce Committee on the bill, said he understands merchants are frustrated, but that the new legislation is "a bad bill because it's not going to accomplish anything."
The printed rules for some credit cards are easily more than 1,000 pages, he said, and available online.
"What's really at the root of this is they don't like the fees," D'Elia told the paper.
Although the Vermont law would not reduce merchants' credit fees, requiring more disclosure would help merchants make better-informed decisions, Wallis said.
"It's not going to change the world," Harrison said of the proposed Vermont law. "It's a baby step."
State Representative Warren Kitzmiller (D), a former retailer, said he introduced the bill because the interchange fees have been "escalating rapidly."
After realizing the state is limited in what it can do, however, Kitzmiller decided Thursday to "morph" the bill into a resolution that calls upon Vermont's congressional delegation to pursue the matter on a federal level. Congressional hearings have been held, but no federal law has been passed regulating credit-card fees or mandating disclosure, said David Carle of the office of U.S. Senator Patrick Leahy (D-Vt.).
"Retailers in Vermont and across the country are rightly concerned that credit-card interchange fees are a growing part of their business costs," Leahy told the paper. "The system needs more transparency.... It is unacceptable to have a system that forces smaller businesses to take a net loss to both accept credit cards and sell milk or diapers or gasoline."
Leahy believes interchange fees should be established through competition, according to the report, and that prices set by competition are best for consumers and for retailers. Carle said that making transparency reforms is a sensible first step.
"The fact is that MasterCard and Visa make their rules available," said Janet Grissom, co-director of the Electronic Payments Coalition (EPC), calling the notion the fees are not disclosed "simply false." She told the paper that "the Merchants Payments Coalition wants price controls."
Lyle Beckwith of the National Association of Convenience Stores (NACS), which is a founding member of the MPC, said the goal is not to cap the fees or add regulations. "We don't want price fixing. We want to break up price fixing," he told the paper. "Right now the market is not functioning. The fees are being set by a duopoly," he said, referring to Visa and MasterCard. "We want the fees to be set in a free-market manner."
Some in Vermont, such as Wallis, said she would like the federal government to regulate what credit-card companies can charge merchants. "These rates have gone up and up, and it's costing merchants a lot of money," Wallis said.
The EPC said merchants are paying for a service; they get more sales, greater fraud protections and faster payments through credit card and debit card sales, said the report, citing the group's website. "Attempts to classify such fees as a 'hidden tax' on consumers would be similar to trying to misrepresent businesses' rent or salaries for employees as a 'hidden tax' on their customers," the group said.
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