Proposed Reforms should be for Improved Consumer Experience

The hearing just this Thursday showed how a lot of small retailers support Representative Peter Welch's stand in ending the abusive practices when it comes to credit card payment processing. Rep. Welch aired out his sentiments to the House Financial Services Committee, in the hopes of getting rid of the major credit card companies' practices that have done nothing but abuse small retailers in the industry. One of Welch's many supporters even testified just how unfair the structure of credit card interchange fees are, saying that these fees only take away more money out of the pockets of the retailers, when they have so little to begin with.

The current practice has the small retailers feeling forced to pay the fees set by credit card networks, including MasterCard and Visa. With no room for any negotiation for these fees, small retailers then have no choice but to pay up.

With the newly proposed legislation, merchants can then set up minimum purchases for the credit card purchases, as well as offer discounts to those consumers who choose alternative methods of payment. The proposed legislation also requires more transparency, where the credit card networks are mandated to disclose all terms involving interchange fees to both the consumers and the merchants. The new legislation would also authorize the involvement of the FTC or Federal Trade Commission when it comes to determining unfair, unlawful, and anti-competitive practices in terms of credit card transactions. Rep. Welch emphasized the need to establish fairer and more reasonable regulation of the credit card practices that all large banks undertake.

Another significant outcome in the meeting is Rep. Barney Frank's proposal to move up the enactment date of the Credit Card Bill. The bill involves changes that credit card companies, banks, and lenders are mandated to undertake, to ensure fairer practices in terms of fees and interest rates for the consumers. Originally, the bill was set for enactment February of 2010. However, it has been observed by Rep. Frank and his administration that large banks in the industry have been hiking their interest rates during this grace period, in the hope to offset the restrictions that come with the bill's enactment next year. As a result, consumers have to contend with unfair credit card practices right now, and Rep. Frank points out that this defeats the purpose of the bill. In line with this, Rep. Frank is proposing to move the enactment date of the bill to December 2009.

Presently, the Congress is still considering Rep. Frank's sentiments. However, this does serve as a warning for large banks that have been actively hiking their interest rates as early as today.

Doug Nicholas

Doug Nicholas, a financial consultant by profession with a Masters degree in International Business from Brown University, is also an ardent writer. Though he has a full time job at one of the companies listed on Wall Street, he does manage to squeeze in time to follow his passion. He puts his ideas to words in his articles related to finance and business.