WASHINGTON -- Several U.S. senators want Visa Inc. and MasterCard Inc., the dominant electronic payment companies, to break down detailed costs associated with transactions called interchange fees, according to letters obtained by Reuters. In letters to the two companies, the senators demanded information about methodologies and specific data used to establish the fees. The letters are dated May 23 and demand the information by June 3, said the report. They were signed by Richard Durbin (D-Ill.), Herb Kohl (D-Wis.), Olympia Snowe (R-Maine) and Arlen Specter (R-Pa.).
"It is important that [image-nocss] Congress fully understands the costs and fees imposed within the credit and debit card systems so we can ensure that these systems will continue to function effectively for all participants," they said.
Consumer groups, convenience stores, gas stations, grocery stores, drug stores and other retailers are concerned that the payment card industry is setting higher non-negotiable fees for card transactions and that the system lacks transparency.
Merchants said they believe that Visa and MasterCard are colluding to set interchange fees much as cartels can fix prices.
Earlier this year, Representative John Conyers (D-Mich.), chairman of the House Judiciary Committee, introduced legislation that would create a panel to determine interchange rates and terms.
Visa, MasterCard and issuing banks criticized the bill as amounting to price controls that will result in higher fees for consumers.
In the letters to the heads of Visa and MasterCard Worldwide, the senators said they assumed the fees are for a variety of costs, including data security and hedging against risk. "However, it is unclear how much of the amount collected in interchange fees is devoted to covering such costs, and how much is used to other purposes such as marketing, rewards programs that benefit certain cardholders and issuer profit," they said.
The senators cited a third-party analysis that estimated about 13% of collected interchange fees are used to pay for the processing costs and the majority is used for reward programs, issuer profits and other unspecified costs.
Specter also commented on a U.S. Government Accountability Office (GAO) study released earlier this month entitled "Credit and Debit Cards: Federal Entities Are Taking Actions to Limit Their Interchange Fees, but Additional Revenue Collection Cost Savings May Exist."
He said, "In addition to the issue of payments by the U.S. government, there are mounting complaints by many merchants and retailers about the interchange rates without negotiating power or the standing to deal effectively with banks and credit card companies. As I have noted before, the activities of the banks and credit card companies may constitute antitrust violations; or it may be necessary to have additional remedial legislation in the field. It is my hope that the parties will be able to work through the negotiating process to achieve a fair and equitable result without the necessity for action to enforce the antitrust laws or congressional action on remedial legislation."
Click hereto view the full text of the GAO report.
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