WASHINGTON — Retailers were poised to begin celebrating last week after more than a decade of battling unregulated interchange fees.
The Senate and House appeared to reach a compromise on an amendment to the financial reform legislation that would for the first time place debit-card interchange fees — assessed to merchants by debit-card issuers for each transaction — under federal oversight and give retailers new flexibility to reduce their costs.
“We are at a point in this process where we feel that even though this is not the end of the road, if we are successful, it is a tremendous step forward, not only for members, but for all of the customers that shop in the stores,” said Leslie G. Sarasin, president and chief executive officer, Food Marketing Institute, Arlington, Va., in an interview with SN last week.
Retailers have been seeking government intervention on credit- and debit-card interchange fees for more than a decade, but had gained some traction in the last six years as Congress began holding hearings on the topic. Many types of merchants have long protested that the fees set by Visa and MasterCard are exorbitant, and that the rules involved with accepting debit- and credit-card payments virtually eliminate free-market competition for debit- and credit-card processing costs.
The fees paid by all merchants, which can total up to about 2% or 3% of each sale, reached about $62 billion last year, according to reports. The proposed legislation does not address credit-card fees, which account for about two-thirds of interchange fees.
The Senate had recently agreed to an amendment to the Restoring American Financial Stability Act of 2010 that would give the Federal Reserve the power of oversight over debit-card interchange fees and require debit-card interchange fees charged by major banks to reflect the actual costs of processing the transactions. The House version of the bill did not address the fees, but late last week both sides had tentatively agreed to a compromise. The full bill could come before the House and Senate this week.
The compromise, led by Sen. Dick Durbin, D-Ill., and key supporters in the House, preserves much of what retailers were seeking in the legislation.
“Everything is positive so far, and we got some good statements from some of the folks that had been opponents of this with regard to the compromise,” said Jennifer Hatcher, senior vice president, government and public affairs. (See Page 8 for a list of recent personnel changes at FMI.)
Among the elements of the compromise are exemptions for government-issued and prepaid debit cards, such as those used for local, state and federal benefits programs. This exemption was included because of concerns that states might have to renegotiate contracts for their assistance programs, Hatcher explained.
“We don't support the exemption for prepaid cards, and we hope that over time there will be a way to address that situation,” she said.
The compromise does, however, allow merchants to introduce some flexibility in terms of steering customers toward cheaper forms of payment by offering discounts for paying by cash, check or debit card, which can be cheaper for merchants to process. Retailers would also be able to set a minimum payment — not to exceed $10 — for consumers to be able to use a credit card. Current rules can make that difficult, Hatcher explained.
In addition, retailers would gain new flexibility to shop for different debit-card processing networks to obtain reduced fees.
“This provision provides additional competition to a previously non-competitive part of the market,” Durbin's office said in a prepared statement. “It allows merchants to choose the debit network with the lowest cost — the opposite of the current system where merchants are forced to use a specific network with fixed prices.”
The compromise also proposes allowing for fees to be adjusted to cover “legitimate fraud prevention costs” incurred by debit-card issuing banks.
“This agreement is a major victory for small-business owners and consumers fed up with big bank and credit-card industry rip-offs” said Rep. Peter Welch, D-Vt., in a prepared statement. “It preserves key protections for the grocers, retailers and country store owners most affected by out-of-control swipe fees, while addressing legitimate concerns of the industry.”