There are opposing viewpoints on this controversial law…

A coalition of retailers is finally seeing action in the U.S. House of Representatives following their request for credit card fee regulations. With the help of 11 additional members of Congress, House Democrat John Conyers of Michigan and Republican Chris Cannon of Utah introduced the ‘Credit Card Fair Fee Act,’ which regulates ‘interchange’ fees charged to retail stores and merchants. With the current system, credit card companies determine the fees that many feel are spiraling out of control.

It was only 8 short years ago that 25% of consumer transactions were made with credit; but today that rate has skyrocketed up to 40% (and rising). With more consumers choosing plastic than ever before, retailers have no choice but to accept credit / debit card payments. But by doing so, they take a cut in their profits with approximately $.02 of every dollar going to the credit card companies via ‘interchange’ fees. These fees bring in about $35 billion annually to the credit card industry. Over the last decade alone, the Visa interchange fee has increased from an average of 1.5% to 1.76%. The merchants and retailers looking to the government for help want new legislation to ensure more reasonable fees.

Although retailers benefit from shoppers who spend more when using credit, smaller merchants have the most to complain about. Operating on a thin margin, they often pay more in fees than they earn in profits. All retailers have the option to offer discounts on purchases made with cash, but it has little effect since credit is more convenient for most consumers. And although larger retailers may have the resources to issue a card of their own as an alternative - most consumers continue to use their bank-issued Visa or Mastercard because it’s too much of a hassle to apply for or carry another card.

The Conyers-Cannon bill would require negotiations with a coalition of retailers on a mutually acceptable fee by any credit card company that has more than 20% of the credit / debit market. Visa currently has 50% of the market with MasterCard at 25%. If an agreement can’t be hammered out, a three-person panel will determine binding rates and terms.

With Visa and MasterCard controlling such a large share of the market, merchants contend that the lack of competition has created a virtual monopoly in the electronic payment industry and that political muscle is necessary. The opposition to the proposed government involvement suggests that Visa and MasterCard have gained their market share by building an efficient and superior product and that a business should not be punished for their ability to bring in huge numbers of voluntary customers by outcompeteing their rivals.

The opposition also notes that competition is emerging in the credit card industry with four major credit-card companies and numerous lower-fee options. One of the biggest areas of electronic transactions is Internet sales; PayPal is a competitor and customer of the credit-card industry and has 25% of the online market. Google has launched an electronic payment service, and last month Revolution Card was introduced – a credit card with no fees.

* Learn more about the Credit Card Fair Free Act, H.R. 5546 >

Bookmarks:

This entry was posted on Friday, May 23rd, 2008 and is filed under: Credit News. Follow through RSS 2.0 Responses are currently closed, but you can trackback from your own site.