Station Devastation

Retailers testify on impact of high credit-card interchange fees

WASHINGTON -- At a hearing yesterday conducted by the House Judiciary Committee Antitrust Task Force, retailers—including those in the convenience store and petroleum industries—testified in support of HR 5546, the Credit Card Fair Fee Act, bipartisan legislation that would end credit-card industry price fixing. "If you are concerned about prices at the pump you need to be concerned about [credit-card] interchange fees," saidTom Robinson, president of Robinson Oil Corp., San Jose, Calif., representing the National Association of Convenience Stores (NACS).

Robinson said that [image-nocss] high credit-card interchange fees are devastating the country's small businesses that dominate the convenience and petroleum retailing industry. More than 60% of the country's 146,000 c-stores, which sell an estimated 80% of the country's gasoline, are one-store operators, and less than 3% are owned and operated by major oil companies.

In the United States, credit-card interchange fees average 1.75%, approximately three times the rate in Europe and four times the rate in Australia. With the average fueling transaction today, consumers paying by credit card incur 6 to 8 cents per gallon in interchange fees.

"The impact on my industry is incredible," said Robinson, noting that c-stores paid $7.6 billion in credit-card fees in 2007, a figure more than double industry profits of $3.4 billion. "Every time you buy gasoline I ask you to remember this—the station you are buying it from is paying more than twice as much money in fees than it is making—and every time gas prices go up the card fees go right up with them," he said. "These fees have simply taken over our industry."

Robinson said that credit-card interchange fees are his top operating expense at six of his 34 Rotten Robbie stores, cumulatively costing his business, and his customers, $4 million in 2007. Moreover, the interchange fees are his only major expense that is not the result of competitive negotiation.

"It is clear that the price for the cashless society is way too high if you let the credit-card industry set the rate," he said.

Robinson urged Congress to swiftly enact HR 5546, which would provide an opportunity for merchants to negotiate reasonable terms with the credit card companies and their member banks.

"Right now there is no market for interchange fees. The fees are fixed by the banks, hidden from the public and forced on merchants in a take-it-or-leave-it offer. The Credit Card Fair Fee Act will create a market for interchange fees for the first time by allowing merchants and the card associations to negotiate on equal footing," said Robinson.

Under the current system, banks that issue credit cards are supposed to compete with each other, but they charge the same "default" interchange fees, giving retailers an ultimatum: either agree to the terms in full or refuse to accept credit cards; however, the latter choice is not a viable option, he said, given the huge combined market power Visa and MasterCard wield with their banks.

"The Credit Card Fair Fee Act is a critical first step to bringing market fundamentals to this non-existent market. This is just the type of approach that appeals to me as a businessman. This is the way that American businesses operate and I am comfortable with it," said Robinson. "What I need is the ability to present myself to the card associations and banks in the same way they present themselves to me—as a group. The card associations should not be afraid to negotiate on even footing with merchants."

The Merchants Payment Coalition (MPC) said that the interchange fee adds nearly $2 to the cost of every $100 Americans spend in stores when they pay by credit card. The Credit Card Fair Fee Act would provide a market-based mechanism to address the costs of the interchange fee, a $42 billion dollar a year credit card fee paid by merchants and consumers through higher retail prices, the group said.

MPC counsel Stephen Cannon told the panel that the collective setting of interchange fees by Visa and MasterCard is a violation of federal antitrust laws. MPC advocates a payment system that is transparent and open to competition.

The current interchange fee-setting system excludes merchants from the negotiation process and, therefore, banks compete to charge the higher rate. In fact, with more than 80% combined market share, Visa and MasterCard each separately operate like price-fixing cartels, each one imposing oppressive interchange fees and rules on merchants on a "take-it-or-leave-it" basis.

"There's no transparency and there's no negotiation," said Mallory Duncan, the chairman of the MPC and senior vice president and general counsel of the National Retail Federation (NRF). "As long as rising rates are kept top secret, consumers have no way of knowing the extra costs they are paying through higher prices," he said. Interchange costs have increased 150% since 2001.

The MPC is a group of retailers, supermarkets, drug stores, c-stores, fuel stations, online merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system. The coalition's member associations collectively represent about 2.7 million stores with approximately 50 million employees.