Credit Card Interchange Fees Being Curbed?
Dick Durbin, a U.S. Senator, has joined the battle against unfair credit practices with his introduction of a new legislation concerning interchange fees that credit card companies like Visa and MasterCard set for retailers each time they process credit card transactions.
The bill is expected to reduce the fees or make them fairer through enabling businesses to negotiate them with the companies. For the time being, the interchange fee rates are set as non-negotiable, boosting the companies' annual revenues by billions of dollars and draining retailers and customers' wallets.
Under the new legislation, entitled The Credit Card Fair Fee Act of 2008, Congress is determined to request and receive exhaustive information on how credit companies establish their interchange fee rates, what methodology and data they use to do that.
Credit card interchange fees are charged each time a retailer accepts your credit card as a payment. As a result, the retailer is forced to mark up the purchase price to compensate for the interchange fee costs. What does it mean? An average American cardholder pays more than he/she would, if the fees were really fair.
No matter if the customer pays with a good or bad credit card, the fees equally apply to all transactions. The new bill will protect retailers' interests and allow them to join collective negotiations with card processing companies to come to a certain agreement.
If no agreement on the fees is reached, the case should be handed over to the three expert judges that are appointed by the Federal Trade Commission to investigate the matter in detail. A mandatory settlement conference will finally be ordered to resolve the case and set the fees that would mostly realistically reflect the fair credit market conditions.
Credit companies insist that interchange fees are set and charged out of the necessity to cover the cost of processing a credit card payment. But there is an evident contradiction. With the fast development of high technologies applied to credit card transactions, such as Radio Frequency ID technology servicing no-swipe bank cards, and card PINs, the processing and authorizing cost should be gradually falling. In fact, it is doing the contrary.
What's more, in spite of the ever rising fees, a recent study revealed that only about 13% of the amount collected is actually allocated to cover the costs of authorizing the transaction, ensuring data security and protecting against fraud. Most part of the interchange fees are assumed to compensate for the lavish rewards programs and companies' other expenses associated with profit-bringing campaigns.
This fact prompts us to think how the new bill will affect a consumer's ability to collect rewards through the card use. In 2007 Visa and MasterCard collected a fortune of $30 billion in credit card transaction fees and it's very likely that at least half of it was invested into miles, points and gas rewards.
Irrespective of the affect on the scope of rewards, the new legislation is in legal force already and a Congress letter has been sent to Visa, requesting the explanation of the fee setting methodology.