NRF Welcomes Legislation Addressing $40 Billion in Hidden Credit Card Fees

The National Retail Federation is applauding proposed antitrust legislation that would address hidden credit card interchange fees that cost merchants and their customers more than $40 billion a year.

"With the rapidly increasing use of plastic, credit card companies and their banks are seeing a windfall that is costing U.S. consumers tens of billions of dollars each year," NRF SVP Mallory Duncan said. "These are fees that most consumers don't even know they're paying because Visa and MasterCard have tried to keep them secret. The introduction of this legislation marks the beginning of the end of credit card company rip-offs."

The Credit Card Fair Fee Act was introduced March 7 by House Judiciary Committee Chairman John Conyers, D-Mich. The bill is Congress' first attempt to address credit card interchange fees. Averaging close to 2 percent, interchange is a fee Visa and MasterCard banks charge merchants every time a credit card or signature debit card is used to pay for a transaction. Visa and MasterCard collected an estimated $42 billion in interchange fees in 2007, an increase of 17 percent over the previous year and 150 percent since 2001.

Interchange is largely unknown to most consumers because Visa and MasterCard don't disclose the fee on monthly statements and effectively keep merchants from disclosing it on receipts. But Visa and MasterCard effectively require merchants to pass the fees on to consumers by requiring them to be included in the advertised price of items and making cash discounts difficult. The fees amount to about $350 per household each year, according to NRF.

The Conyers bill would require credit card systems possessing "substantial market power" to negotiate with merchants to reach a voluntary agreement on credit card terms and conditions. If an agreement cannot be reached, both sides would be required to submit to binding arbitration by a three-judge panel appointed by the Department of Justice and Federal Trade Commission.

The arbitration proceedings would take place with a limited 60-day discovery period and other statutory deadlines, and the judges would be required to apply a market standard reflecting a perfectly competitive system where neither side had market power. Terms and conditions set by the panel would be in effect for three years, at which time the process would repeat itself. Both sides would receive limited immunity from antitrust laws to participate in the process.

The legislation requires that terms and conditions set under the process be available to any merchant regardless of size, industry or location. Individual merchants or groups of merchants would remain free to negotiate voluntary arrangements with credit card companies and their banks.