Thursday, May 24, 2007
Interchange under attack
It's almost a rite of spring: One or both of the card Associations implement new interchange fee schedules. This forces acquirers and processors to adjust their fees, and the retail sector cries foul.
This year, Visa U.S.A. rolled out a new interchange schedule, effective April 14. Within days, the National Retail Federation was rallying state lawmakers behind efforts to force major changes to interchange.
Many of Visa's rates remain the same as last year. However, Visa introduced a new card category - Signature Preferred - which raises interchange on some transactions.
MasterCard Worldwide also recently announced rate changes, effective April and June 2007. (For information on the latest rate changes from MasterCard and Visa, see The Green Sheet, issues 07:03:01 and 07:05:01, respectively.)
"When Visa and MasterCard [assess interchange], they don't take it on just the retail sale; they take it on the entire transaction, including the sales tax," Mallory Duncan said during the National Conference of State Legislatures' (NCSL) spring conference, April 19 in Washington, D.C.
Duncan is NRF Senior Vice President and General Counsel, and Chair of the Merchants Trade Coalition, a group of federal and state trade associations representing merchants who accept credit cards. He said retailers, who merely collect and do not retain sales taxes, are particularly irked that those funds are included in interchange assessments.
"The sales tax is the people's money, and [Visa and MasterCard] shouldn't be trying to take a piece of it," he said. "That drives up prices even higher, and everybody ends up paying a tax on a tax."
It also bothers merchants that monthly account statements from card servicing banks don't break out interchange costs, Duncan added.
The NRF and other members of the Merchants Trade Coalition have been railing against interchange since the so-called Wal-Mart suit opened to public debate this long-standing industry pricing mechanism.
Several coalition members were party to that lawsuit. It resulted in a multibillion-dollar out-of-court settlement and the elimination of rules that compelled merchants accepting MasterCard and Visa credit cards to accept all other card products bearing those brand names.
Merchants managed to get the ear of the U.S. Congress, which held hearings last year. But so far this year, interchange is not high on the agendas of any pertinent congressional committees.
For now, lawmakers are more interested in card issuers. Earlier this month, Sen. Carl Levin, D-Mich., took to the Senate floor to denounce card issuer fees and fee-levying practices. He also said he was introducing legislation to rein in such practices.
Legislation pending in several states, however, would cap or exclude interchange on certain transactions.
The Merchants Trade Coalition estimates that MasterCard and Visa collected about $36 billion in interchange during 2006. The group noted that this represents a 17% increase over 2005, and an increase of 117.5% since 2001.
At least a dozen bills pending in state legislatures address topics related to interchange, according to the NCSL. Here's a rundown of several key initiatives:
- Two bills introduced in the Florida state legislature would require refunds to merchants paying interchange on sales taxes.
- Legislation pending in Kansas would require that merchants have better access to information related to interchange rates. It also defines interchange fees for purposes of state law.
- A bill pending in Nevada would prohibit interchange on certain transactions.
- In Oklahoma, legislation has been introduced that would prohibit certain contract provisions regarding merchant transaction fees.
- Lawmakers in Tennessee are considering legislation that would cap at 0.75% all processing fees associated with credit or debit card transactions. The proposal would apply to contracts entered into with merchants by banks or their agents after July 1, 2007.
- Texas lawmakers have a bill before them that would require more transparency in disclosing interchange and related processing fees. A tougher bill, introduced and quickly withdrawn in March after a large consumer letter-writing campaign, would have allowed retailers to surcharge credit and debit card payments to cover processing costs.
- In Washington state, lawmakers want to restrict interchange to 1.5% of the total cost of a retail card transaction.
Whether this attention given to squeaky wheels will lead to a smoother ride for retailers remains to be seen.
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