Retailers, Credit Card Companies Quibble Over Footing the Bill

By Jeffrey H. Birnbaum
Tuesday, March 20, 2007

Retailers and credit card companies normally love each other. In fact, it's no exaggeration to say that they can't live without each other. Except on Capitol Hill.

Here, retailers are lobbying intensively to try to persuade the federal government to force credit card companies to reduce the fees they charge merchants to use their cards. And the card companies are fighting back, accusing the merchants of seeking price controls.

"They collect a hidden tax, and it's excessive," said Steve Pfister of the National Retail Federation about the card companies.

"They want to shift their costs of doing business onto the consumer through price controls," responded Rhonda B entz of Visa USA.

Lobbyists for both sides have been briefing lawmakers about "interchange fees" -- the average 1.9 percent assessment that merchants pay on every credit card charge they make.

The card companies (and banks that issue the cards) say the fee is fair and necessary to cover both the cost of processing and of popular bonus programs that the cards often feature. Retailers and other businesses required to pay the fee say the amount is too high, violates antitrust laws and often all but erases their narrow profit margins.

In true Washington style, each side has created a coalition and has put its arguments into cyberspace. The Merchants Payments Coalition, the retailers' lobby, operates The Electronic Payments Coalition, the card and bankers' lobby, can be found at the far less imaginative

But why are they making the arguments at all? Is this an issue that the government can even tackle?

Military theorist Carl von Clausewitz said, "War is a continuation of politics by other means." In this case, lobbying appears to be the continuation of commercial negotiations by other means. Both sides acknowledge that they would prefer to settle their dispute through inter-corporate conversations rather than by legislation or regulation.

But clearly the pressure applied in Washington -- and also in a court case pending in New York -- is meant to hurry along that settlement. "The elements do play well against each other," said John J. Motley III of the Food Marketing Institute, which represents grocers who oppose the card companies.

A sure sign that the battle is at least partly for show -- to leverage a negotiated resolution -- is that the retailers have yet to propose a specific bill to stop what they say is unconscionable gouging. Retailers also may not want to go too far in angering "the hand that feeds us," as Pfister puts it. Indeed, the credit card coalition is just as equivocal.

"We're not fighting against anybody -- we're fighting for the current system," said Peter T. Madigan, executive director of the Electronic Payments Coalition. "These are our valued customers."

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