The State of the States on Interchange Fees

Legislatures join congressional efforts looking into $36 billion issue

WASHINGTON -- Nine states have introduced a total of 15 bills concerning the hidden credit card interchange fees that cost U.S. consumers $36 billion last year, according to a survey of state legislative activity released by the Merchants Payments Coalition (MPC).

Pending state legislation ranges from proposals that would prohibit card-issuing banks from charging interchange fees on the sales tax portion of a retail transaction to requirements that credit card companies fully disclose their rules and policies to merchants and consumers.

"This attention at the state level shows growing concern over the practices of the credit card companies," said Mallory Duncan, senior vice president and general counsel at the National Retail Federation (NRF) and chairman of the MPC. "In fact, the number of states considering legislation has doubled since last year."

"This is an important issue at both the state and federal level because interchange is the biggest credit card fee most consumers have never heard of," Duncan said. "For years, Visa, MasterCard and their banks have gotten together to fix interchange fees in secret in violation of federal antitrust law, and their non-negotiable rules make it virtually impossible for merchants to tell customers just how much they are actually paying. These efforts at the state level can help focus attention on this issue."

Bills to ban interchange fees on the sales tax portion of transactions have been introduced in Florida, Kansas, Nevada, New York and Washington. Kentucky, Nebraska and Texas have introduced bills requiring credit card companies and issuing banks to be more transparent in disclosing rules and fees. A bill in Tennessee would cap interchange rates at 0.75%. Some states have multiple bills pending that would address various aspects of interchange.

The MPC is made up primarily of national trade associations representing businesses that accept credit and debit cards. But state associations in 47 states have joined the coalition in recent months, showing further evidence of state-level concern over the issue.

Unknown to most consumers, interchange is a percentage of each transaction that Visa and MasterCard collect from retailers every time a credit or signature debit card is used to pay for a purchase. The fee varies with type of merchant, transaction and card, but averages close to two percent for most transactions. Visa and MasterCard interchange fees totaled $36 billion in 2006, up 17% from 2005 and 117% since 2001, according to MPC estimates. Visa and MasterCard do not disclose interchange fees on monthly statements, and their operating rules prohibit retailers from showing the charge on sales receipts.

Earlier this year, the MPC commissioned a poll that found that more than 90% of U.S. adults believe credit card companies should disclose how much they charge in interchange fees and how those fees are set.

The U.S. Senate Judiciary Committee last year held a hearing on whether interchange practices violate federal antitrust law. The Senate Banking, Housing & Urban Affairs Committee plans to hold a hearing on interchange this year, and the Senate Homeland Security & Government Affairs Committee may include the issue in its investigation of abusive credit card industry practices and fees.

The MPC represents retailers, supermarkets, drug stores, convenience stores, gas stations, online merchants and other businesses that accept debit and credit cards. MPC member associations collectively represent nearly three million stores.

Click here for the full survey with details on legislation pending in each state.