GAO Report Finds Credit Card Swiping Fees on the Rise

 

“This report shines a spotlight on credit card fees and their cost to consumers,” NRF Senior Vice President and General Counsel Mallory Duncan said. “In the past two weeks we’ve seen the Federal Reserve Bank of Kansas City hold a major conference on credit cards, a study from the Hispanic Institute on how card companies take from the poor and give to the rich, and now this document. Clearly, there is a growing focus on this issue and it’s time for action. With this information in hand, we hope Congress will move quickly to pass legislation to bring these fees and practices under control.”

“This report confirms what we have been saying about swipe fees for years – that they drive up costs for consumers and are a cash cow for banks,” Duncan said.

The GAO today issued a 64-page report on credit card interchange fees that resulted from a study ordered by Congress as part of the Credit Card Accountability, Responsibility and Disclosure Act reform bill signed into law in May. The study addressed issues such as disclosure of interchange fees to consumers, the extent to which the fees drive up prices for consumers, the card industry’s refusal to negotiate over the fees, how much money generated by the fees goes to marketing programs such as travel miles, and ways in which card company contracts block merchants from giving discounts to customers who pay by cash.

Among other conclusions, the GAO found that interchange rates have risen despite Visa and MasterCard claims that they have remained “fairly” constant, that interchange fees drive up prices for consumers, and that consumers could see lower prices if the fees were reduced.

 

Interchange is a fee averaging 2 percent that Visa and MasterCard banks charge merchants each time one of their credit cards is swiped to pay for a purchase.

 

The credit card industry’s interchange or “swipe fee” revenue has tripled from the $16 billion collected when NRF began tracking the fees in 2001 to $48 billion last year. Visa and MasterCard rules effectively force merchants to pass the fees on to consumers by requiring them to be included in the advertised price of merchandise and making cash discounts difficult. As a result, the average household paid an estimated $427 in higher prices last year, up from $159 in 2001.

NRF testified before the House Financial Services Committee last month that credit card companies are in an “arms race” to increase interchange revenue by switching many customers from ordinary cards that carry fees as low as about 1.5 percent to “gold” and “platinum” cards that offer rewards like travel miles or concierge services but charge 3 percent or more. The industry has also introduced cards into traditionally all-cash areas such as taxi cabs and fast-food restaurants.

 

Three major bills that would address interchange are pending in Congress. H.R. 2382, the Credit Card Interchange Act of 2009, sponsored by Representative Peter Welch, D-Vt., would require card companies to disclose interchange rates, terms and conditions, and would give the Federal Trade Commission authority to review interchange and prohibit any practices that violate consumer protection or anti-competition laws.

Merchants would be allowed to give cash discounts and set minimum card purchase amounts, and could choose which cards to accept.

 

The Credit Card Fair Fee Act, sponsored in the House as H.R. 2695 by Judiciary Committee Chairman John Conyers, D-Mich., and in the Senate as S. 1212 by Majority Whip Richard Durbin, D-Ill., would require Visa and MasterCard banks to negotiate over interchange fees rather than continue to impose them on merchants on a take-it-or-leave-it basis. If an agreement could not be reached, the Durbin bill would require both sides to submit their final offers to binding arbitration by a three-judge panel appointed by the Department of Justice and FTC.

 

Under the Conyers bill, negotiations would be overseen by the Justice Department rather than a three-judge panel.