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reports that a hearing yesterday before the US House of Representatives Judiciary Committee antitrust task force has retailer organizations accusing Visa and MasterCard of charging excessive interchange fees on electronic transactions, and pushing for passage of legislation called the Credit Card Fair Fee Act that would require Visa and MasterCard to negotiate fees and submit to any disputes to a pane of judges.

The credit card companies countered that they do actually negotiate fees, and the charged that the retailers prefer litigation and legislation to negotiation.

According to the CNN piece, "The dispute has intensified as plastic has become the preferred payment method. A majority of transactions are now done electronically, Texas Rep. Lamar Smith said, up from roughly 20 percent 10 years ago. That number will reach 70 percent in three years, he added.

"The interchange fee, which Visa says averages about 1.6 percent, differs depending on the merchant and type of card. The fees are set by Visa and MasterCard but are collected by the merchant's bank as part of a larger charge for processing the transaction. The credit card companies say they don't receive revenue from the fees."

Among those testifying before the committee, Tom Robinson, president of San Jose, California-based Robinson Oil Corporation, speaking on behalf of the National Association of Convenience Stores (NACS), linked high interchange fees to high gas prices. "If you are concerned about prices at the pump you need to be concerned about interchange fees,” he said.

“The impact on my industry is incredible,” said Robinson, noting that convenience stores paid $7.6 billion in credit card fees in 2007, a figure more than double industry profits of $3.4 billion. “Every time you buy gasoline I ask you to remember this – the station you are buying it from is paying more than twice as much money in fees than it is making – and every time gas prices go up the card fees go right up with them,” he said. “These fees have simply taken over our industry.”

“This law simply gives retailers the right to negotiate reasonable fees with credit card companies, a fundamental practice in the American free enterprise system,” said John J. Motley, III, the Food Marketing Institute (FMI) senior vice present of government and public affairs. “As it stands now, they set the fees in secret, and the cost to merchants and, ultimately, to consumers is skyrocketing.”

"If consumers knew how much they are actually paying for credit cards, most would say they aren’t worth the price,” National Retail Federation (NRF) Senior Vice President and General Counsel Mallory Duncan told the hearing. “U.S. consumers are paying an outrageously high annual fee that most don’t even know about, and the price is going up dramatically every year … There is no transparency and no negotiation under the current system. This legislation would bring about true competition among the banks that issue credit cards, giving retailers the opportunity to negotiate terms on behalf of themselves and their customers that reflect the actual cost of the services provided.”

According to CNN, "The Government Accountability Office issued a report Thursday that the card companies and banks said bolstered their argument. The GAO found that federal agencies, such as Amtrak and the Post Office, have reported higher levels of customer satisfaction since accepting credit and debit cards and that government agencies have been able to negotiate lower interchange fees.

"The report also found mixed results from an effort by Australian regulators to cap interchange fees in 2003. Merchants have benefited from lower fees, the report said, but there's no evidence they have passed that benefit to consumers by lowering prices. Banks that issue cards, meanwhile, have reduced rewards and increased consumer fees, the GAO said."

FMI notes that the "Credit Card Fair Fee Act enjoys strong bipartisan support. Judiciary Committee Chairman John Conyers (D-MI) introduced the bill in March with Utah Republican Rep. Chris Cannon. All together, 32 members of the U.S. House of Representatives — 18 Democrats and 14 Republicans — have signed on to the bill."

KC's View:
Beyond the fact that I have no sympathy for credit card companies, it is the lack of transparency that really offends me. They set the rates in secret, and nobody is allowed to explain to shoppers in detailed form what the rates mean and ho they affect prices.

At the very least, the government should insist on complete transparency. And hopefully the hearings this week are a way of advancing the legislation in a significant way.