When the credit card bill was released, merchants were less than pleased that they had been left out.
While addressing many unfair credit industry practices such as unfairly high interest rates and fees and obfuscated business practices, the credit car bill left out merchant's pet credit industry peeve: interchange fees.
Merchants pay an interchange fee every time their customers buy from them using credit cards. These fees average at about 1.75 percent of a credit cardholder's purchase fees. Depending on the credit card company, interchange fees can range from 1.6 percent to more than 2 percent. Interchange fees end up being quite a burden for merchants. Part of the fees also are also being passed on to consumers which end up increasing merchandise prices.
A new measure being focused on in Washington called the Credit Card Fair Fee Act is expected to address the issue of interchange fees. The legislation will focus on giving negotiation powers to merchants so that they can arrange for reduced costs with their banks regarding credit card purchases. Currently, the legislation has just been introduced in the House of Representatives of the U.S. If it turns out to be successful, it will lighten the burden of interchange fees from a whole range of merchants such as restaurants, shops and service stations.
Currently, Mastercard and Visa, the two major payment networks, have power over setting the fee structure for credit card payments. They also control around three fourths of the total number of transactions for general purpose cards. American Express and Discover use their own system.
Complaints about the system have been coming from merchants for a long time and lawmakers have recently joined in. The major complaint is that merchants are blocked from negotiating a more advantageous fee structure for themselves with the Mastercard and Visa payment networks. There have also been complaints about collusion among banks to control the fee structure to their advantage and to block negotiations for lower fees from merchants.
If this new interchange fee bill is enacted, merchants will have more power to negotiate with banks for terms and rates. The Department of Justice will also have an antitrust attorney present during these negotiations.
When the credit card bill was passed recently, the credit industry heaved a sigh of relief over the fact that did not touch interchange fees, at least. However, with this new Credit Card Fair Fee Act making the rounds in the House, the industry may be facing another challenge as credit card companies seek to minimize their losses and restore profits amidst increasing defaults and declining spending.