By Nancy Trejos
Washington Post Staff Writer
Thursday, September 17, 2009
A battle is brewing over the processing fees that banks charge merchants each time a customer uses a credit or debit card.
Congress is considering three bills that would regulate the so-called interchange fees -- which generally amount to 1 to 2 percent of a total sale and totaled $48 billion in 2008. Meanwhile, the Government Accountability Office is doing a study of the fees, as required by a law signed by President Obama in May that bans many unfair credit card industry practices.
Merchants across the country and the card industry are waging a fight for public support. The merchants say the fees are excessive and eat into their already small profit margins, forcing them to pass on the cost to consumers. The card issuers say they are providing merchants a much-needed service as more Americans choose to pay for their purchases with plastic. Both sides have created YouTube videos, bought newspaper ads and released studies to prove their points. Large national chains such as 7-Eleven have embarked on petition drives.
The Merchants Payments Coalition will release a study on Thursday of how European countries, Canada and New Zealand handle interchange fees. Merchants in those countries generally pay lower interchange fees. The study found that if American merchants paid the same swipe fees as those in Australia the past four years, the net savings would total $125 billion.
"It's the number two cost, behind labor, in our industry, and it's nonnegotiable," said Lyle Beckwith, a senior vice president with the Alexandria-based National Association of Convenience Stores. "And as more and more people are using plastic for payment, it's getting increasingly problematic for our industry."
The merchants want the right to band together to negotiate the fees with the banks, which they say they are currently not able to do. One bill before Congress, introduced by House Judiciary Committee Chairman John Conyers Jr. (D-Mich.), would allow merchants to enter into collective bargaining agreements with banks when setting fees. Sen. Richard J. Durbin (D-Ill.) has introduced a similar companion bill.
A third bill, by Rep. Peter Welch (D-Vt.), would make it easier for merchants to steer customers to other forms of payments and let them set minimum and maximum amounts for credit card purchases.
Industry representatives say the merchants do have the ability to negotiate but that most choose to go with a default nonnegotiable rate.
They also point to other studies showing that lowering interchange fees in Australia forced card issuers to raise other fees and scale back on rewards programs.
They say the merchants are trying to get for free services that allow them to accept credit cards, which is the preferred mode of payment for many consumers. Among the services the interchange fees cover are guaranteed payment to the merchant, risk management protection and better record-keeping.
"Retailers in particular benefit from the value electronic payments deliver," said Denise Dunckel, a spokeswoman for Visa. "Unfortunately some retailers don't want to pay for the benefits of electronic payments and instead have joined their large trade associations and are backing legislation that will significantly and negatively impact consumers, especially those struggling in this time of economic uncertainty."
Even if the merchants do gain the ability to negotiate lower fees, there is no guarantee that consumers will benefit, the banks said.
"The merchants appreciate that benefit, but some of them, the more vocal ones, don't want to pay for it. Who's going to pay? The customers," said Trish Wexler, a spokeswoman for the Electronic Payments Coalition, which represents the banks.
Keith Lipert, owner of Keith Lipert Gallery, a gift shop in Georgetown, said the fees hurt both merchants and customers.
"I feel it's grossly unfair that I have to give 2 percent of the whole thing to an outside company," he said. "At the end of the day we're all struggling to make ends meet. It's a hell of a lot of money you're seeing going out of your bank account every month."