"The card companies have a 'discrimination' rule," NRF senior vice president and general counsel Mallory Duncan said. "It prohibits merchants from giving customers a discount if the customer uses cash, checks or a card with lower fees. This is a remarkably anti-competitive rule. It's like Pepsi and Coca-Cola [image-nocss] telling stores that they could be fined if they charged people less for other soft drinks. Its effect, of course, is to discourage the market from moving toward cheaper forms of payment. That's good news for credit-card companies but bad news for retailers and their customers."
Duncan testified before the Vermont House Commerce & Economic Development Committee during a hearing on S. 138.
If enacted, the bill would allow Vermont retailers to set both minimum and maximum credit-card purchases without interference from Visa and MasterCard banks, which currently bar the practice in their contracts with merchants. The two companies would also be prohibited from dictating how merchants price items or blocking a merchant from giving a discount for cash, checks, debit cards or credit cards with lower-than-usual swipe fees. Visa and MasterCard also could not force a retailer to accept cards at all store locations if the retailer only wanted to accept them at one location.
The bill is based in part on the Credit Card Interchange Act, federal legislation addressing fees charged to merchants sponsored by U.S. Representative Peter Welch (D-Vt.) that is awaiting action in Washington.
Retailers have long wanted freedom to set minimum purchase amounts because swipe fees can exceed a merchant's profit on small purchases. On big-ticket items, the swipe fee can significantly drive up the price that must be charged.
Officially known as interchange, swipe fees average about 2% of the purchase price and are charged to merchants by Visa and MasterCard banks each time one of their cards is swiped to pay for a purchase. Collections totaled $48 billion nationwide in 2008, triple the $16 billion collected when NRF began tracking the fees in 2001.
Cash and checks are not subject to swipe fees, and PIN debit cards are generally cheaper for merchants than credit cards or signature debit because they carry lower fees.
Duncan also explained how Visa and MasterCard rules effectively force merchants to pass the fees on to consumers by requiring them to be included in the advertised price of merchandise and making cash discounts difficult. As a result, a shopping bag of goods that could be sold for $99 has to be priced at about $101 on the assumption that the customer might pay by credit card, he said. Nationwide, the average household paid an estimated $427 in higher prices in 2008, up from $159 in 2001.
"Regardless of whether one uses cash, check or food stamps, we all end up paying the credit-card company price," Duncan said.
As the world's largest retail trade association and the voice of retail worldwide, NRF's global membership includes retailers of all sizes, formats and channels of distribution as well as chain restaurants and industry partners from the United States and more than 45 countries abroad. In the United States, NRF represents the breadth and diversity of an industry with more than 1.6 million American companies that employ nearly 25 million workers and generated 2009 sales of $2.3 trillion.
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