"This begs the question: How can two 'competitors' announce price increase of nearly 300% at the [image-nocss] same time in a recession? From what we've seen with credit card interchange fees, the answer is obviously that two competitors with excessive and abusive market power can do what they want," said Beckwith.
In 2007, credit card fees cost convenience stores $7.6 billion. The largest component of these fees was credit card interchange fees, which are a fixed fee and a percentage of each transaction that Visa and MasterCard and their member banks collect from retailers every time a credit or debit card is used. These fees average 1.8 percent in the United States, which has the highest interchange rate of any industrialized country.
The credit card giants' new rates are expected to raise more than $600 million in revenues, according to published reports.
"The credit card fees that U.S. retailers pay are outrageous," said Beckwith. "These newly announced fee increases are beyond outrageous. At a time when small businesses are feeling the economic pain of the recession, it is unconscionable that Visa and MasterCard can give themselves their own 'bailout' by slapping 300 percent increases on their fees."
The fee hikes coincidentally comes at a time when the European Commission is increasingly scrutinizing credit card fees and announced that interchange fees will have to pass competitive review, while U.S. retailers are unable to negotiate their fees despite repeated requests. "At the very time Europe is aggressively reigning in abusive fees, Americans are being subjected to even higher ones," said Beckwith.
Meanwhile, a coalition of grocers, convenience store owners and other retailers is renewing its push to rein in the fees merchants pay to credit-card issuers whenever a shopper uses plastic, reported Dow Jones.
The retailers are seizing on lawmakers' appetite to overhaul financial regulation and crack down on the credit-card industry. They say the interchange fees must be fixed before the financial system can be stabilized. "First it was subprime mortgages. We believe there is another financial storm on the horizon," National Grocers Association executive vice president Tom Wenning told reporters in a conference call Monday.
An important source of revenue for many banks, interchange fees are loathed by merchants. The fees are levied on merchants every time a customer uses a credit or debit card to make a purchase. Set by the major credit-card companies, Visa Inc. and MasterCard Inc., they are paid to card issuers via the merchant's bank.
The Merchants Payments Coalition (MPC) is bringing pressure to bear on eight junior members of the House Financial Services Committee to support legislation to limit the fees. The strategy marks a shift from the last Congress, when retailers tried to push legislation sponsored by Judiciary Committee Chairman John Conyers (D-Mich.) that would have granted merchants an antitrust exemption to negotiate as a group for lower fees.
The retailers are airing radio, television and print ads in the lawmakers' districts encouraging their constituents to contact them about the fees. The advertisements, which the coalition says will cost "six figures," have already begun in some districts. Reps. Walter Minnick (D-Idaho), Jim Himes (D-Conn.), Bill Foster (D-Ill.), Paul Hodes (D-N.H.), Dan Maffei (D-N.Y.), Shelley Moore Capito (R-W.Va.), Jim Gerlach (R-Pa.), and Travis Childers (D-Miss.) are those being targeted by the campaign.
Interchange fees vary by segment of the retail industry and by type of card. But on average, they amount to 1.75% of the purchase price, the card associations say. Retailers contend the fees are higher in practice, approximately 2% of the purchase price, once the use of rewards cards, which often carry higher fees, is taken into account. Interchange fees paid by merchants have grown from $16 billion in 2001 to $42 billion in 2007, according to the retailers.
They argue that Visa and MasterCard, which have a combined 80% share of the credit-card industry, use their market power to keep the fees high so they can expand their network of member banks. They say the fees dent merchants' already razor-thin profit margins and act as a hidden tax on consumers.
A rival coalition of banks, credit unions and Visa and MasterCard contends the fees are needed to cover the costs of offering consumers credit cards. "If they can't collect as much in revenue, they will be forced to increase fees on credit-card holders or stop issuing cards," said Trish Wexler, a spokesperson from the Electronic Payments Coalition.
The merchants' coalition is not pushing any particular legislation, but says it has had discussions with Financial Services Committee Chairman Barney Frank (D-Mass.) about a variety of ways for merchants to shield themselves from the fees. For example, legislation could allow merchants to offer discounts for consumers using cash or cards that carry lower fees. A rule requiring merchants to accept all credit cards if they accept any at all could be eliminated, giving retailers more bargaining power to negotiate over the fees.
Last year, legislation to allow retailers to band together to negotiate with Visa and MasterCard on the fees stalled in the House. The legislation would have required the two groups to negotiate on fees and terms. If the talks failed, a three-judge panel appointed by the Federal Trade Commission (FTC) and the Justice Department would step in and decide between each party's final offer. That bill, which was approved by the House Judiciary Committee, so far has not been reintroduced this Congress. Now, the retailers are shifting their sights to the House Financial Services Committee and the Senate Banking Committee. Both panels are set to weigh legislation that would limit credit-card issuers' ability to charge fees and hike interest rates on consumers.
The retailers see this as a possible vehicle for language reining in interchange fees. "You can't fix the credit-card problem, unless you fix the biggest fee of all, and that's the interchange fee," National Retail Federation senior vice president Mallory Duncan said.
The MPC represents approximately 2.7 million stores.Click here for a full list of member organizations.
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