The credit card act now stays on the back burner as retailers demand for tighter rules on interchange fees. Card holders were relieved when the US Congress eliminated the credit industry's profiteering practices through the enactment of the credit card act. Store owners, however, have long-time issues about the high transaction fees charged by banks and card companies.
Retailers spent a great deal of money and time in lobbying for stringent rules. Their banks pay a non-negotiable 1.6% to card-issuing banks each time a consumer makes a transaction using a card. At a hearing, the House Financial Services Committee heard a small-store merchant reveal excessive fees charged by card companies. A grocery store-owner said she may as well give small items for free because selling them costs her much with the interchange fees.
In response to retailers' pleas, Congress introduced three separate bills that address their concern. One bill was proposed by Senator Richard Durbin, giving merchants an antitrust protection in order to negotiate lower rates. They would be given the option not to acknowledge cards that charge higher fees, used to offer card holders' perks. Another bill aims to let stores charge minimum and maximum fees for card purchases.
Brian Gardner, the senior vice president at investment bank said the prospect of the interchange fee reform is to make banks soften their opposition to consumer protection.
A study on the matter is being conducted by the Government Accountability Office, as part of the card reform law signed last May. If account holders are indeed hurt by fees, overhaul legislation may improve.
The Merchants Payments Coalition, a retail lobbying group, discloses how consumers and retailers spent as much as $48 billion on interchange fees in 2008. This figure has already tripled since 2001. The card industry, however, counters that surging fees simply reflect an explosion of credit card use, which tripled for Visa cards from 1998 to 2007.
The Electronic Payments Coalition, on the other hand, asserts that merchants and consumers have benefited from the convenience and network security supported by the fees. McDonald's, for one, increased its transactions after it began accepting credit cards in 2004.
For business owners, the issue revolves around the demand for control over the type of cards they accept - and when these cards will be accepted.
Small merchants may probably be more hesitant to acknowledge rewards cards if allowed, which carry fees as high as 2.4% for every transaction, compared with Visa's 1.6% average rate. This may keep business owners from subsidizing the rewards of their customers, but might eliminate free rewards cards since banks would not be willing to pay the rewards of out their pocket.