Interchange rates are the fees that merchants pay to card issuers for the acceptance of credit and debit cards. These fees are regulated by the card networks. Merchants have long complained that these fees are too high, and have called for greater transparency and reform. Merchants argue that the current interchange rates make it difficult for them to compete with larger businesses. In addition, merchants argue that the interchange system is opaque and complicated, making it difficult for them to understand how their fees are calculated. Where does the Durbin amendment fit in this?
You have likely seen that Mastercard and Visa implemented new interchange rates in April that they say will create a slight reduction in costs for most merchants. The National Retail Federation (NRF) disagrees with that assessment. Vehemently. The NRF has been successful in lobbying for a discussion of the topic of swipe fees with the Judiciary Committee that will take place today (May 4th). As The American Banker noted:
Sen. Dick Durbin, D-Illinois, is convening the hearing in response to a rising chorus of complaints from merchant industry representatives on long-simmering issues including recent credit card interchange hikes Visa and Mastercard implemented. Merchants also claim that debit card interchange pricing doesn’t reflect the changing mix of electronic payments.
Merchants claim payment card interchange rates are anticompetitive and they have long sought government intervention to enable negotiation with the card networks to set rates.
On the merchants’ side, speakers scheduled include Laura Shapira Karet, chair and CEO of Pittsburgh-based supermarket chain Giant Eagle, along with Doug Kantor, general counsel for the National Association of Convenience Stores, and Ed Mierzwinski, senior director of consumer programs at U.S. PIRG.
Financial services representatives on the docket include Bill Sheedy, senior advisor to Visa’s Chairman and CEO Al Kelly; along with Linda Kirkpatrick, Mastercard’s president, North America. Charles Kim, executive vice president and CFO at Kansas City, Missouri-based Commerce Bancshares, will also speak at the hearing.
In a counterattack, a coalition of industry groups communicated to lawmakers the serious flaws of interchange regulations and are pushing back against efforts to expand the Durbin amendment to require issuers to make available access to an unaffiliated debit network for card-not-present transactions and to lower regulated interchange. Here’s what Banking Journal had to say about that topic:
Ahead of a hearing in the Senate Judiciary Committee on credit and debit card interchange fees, ABA joined with a broad coalition of industry groups to communicate to lawmakers the serious flaws of interchange regulations and push back against efforts to expand the Durbin amendment. Instead, the groups called for a full repeal of the Durbin amendment, which they said has only led to higher costs for consumers and small businesses.
“Study after study has found that the Durbin Amendment has failed to lower retail prices as merchants promised and as time goes on, an increasing number of smaller banks and credit unions will be subject to its rules because its thresholds weren’t indexed for inflation,” the groups said in a statement submitted for the record. “Repealing this law will prevent these harms from continuing to mount and will restore a fully functioning market for checking accounts.”
The trade groups also emphasized that the Durbin amendment should not be extended to apply to credit transactions—and warned that doing so would have “a dramatic effect on consumer protections and services associated with the credit card products that are overwhelmingly popular with the American public.” They also urged the Federal Reserve to not move ahead with its proposal to extend Regulation II—Durbin’s implementing regulation—to expand its provisions to virtually any type of debit transaction.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group