Transaction Management & Solutions | TM&S » HR 5546

Will Merchants Be Able To Negotiate Interchange?

Michael Brooks — Mon, 27 Oct 2008 18:48:12 +0000

In previous posts I have written about HR 5546 which will allow merchants to negotiate their Interchange Rates directly with Visa and MasterCard. As I have been following the developments, it seems as if the National Retail Federation is making the card processing companies out to be deceitful. In many articles the NRF has referred to Interchange fees as “hidden costs,” and also as being the cause of consumers paying more for goods. Interchange is public record.

HR 5546 is also known as the Credit Card Fair Fee Act of 2008. This bill would require Visa and MasterCard to negotiate with merchants and reach an agreement on credit card terms and conditions. If an agreement is not reached, both sides will be required to submit their final offers to binding arbitration by a three-judge panel appointed by the Department of Justice and Federal Trade Commission.

Before a bill is passed it has to go through several phases:

It has to be introduced
Reported by committee
Voted on in House
Voted on in Senate
Signed by the President

HR 5546 is currently up for vote in the House. Before a bill can be passed, I think it is important that merchants, as well as the National Retail Federation, understand Interchange. This bill also seems more like a hostage situation. Retailers will be holding the Associations hostage until their demands are met. If passed, it may do more harm to consumers needing to pay with credit cards if these large retailers don’t get their way on fees. The arbitration may be drawn out, costing each party involved needless legal expenses. In a credit card driven society, we may be stabbing ourselves in the foot.

Are Visa And MasterCard Going Too Far?

Michael Brooks — Wed, 08 Oct 2008 19:42:29 +0000

In recent news, Discover Financial Services has been going round and round in a lawsuit with Visa Inc. and MasterCard Inc. Discover claims restrictions were placed by Visa and MasterCard – the world’s two largest card companies – on banks to stifle competition and violate antitrust laws. Visa and MasterCard argue that Discover simply has not been able to close partnerships with banks because of the smaller fees that are made on their cards. But this is just one of many recent complaints about Visa’s and MasterCard’s practices.

Visa and MasterCard are under the gun in Congress as well, for price-fixing and price gauging practices. The Credit Card Fair Fee Act (HR 5546/S 3086) stops the price fixing by Visa and MasterCard by insisting upon the use of a transparent market-based process. Some may say these are anti competitive practices, while others speculate that regulation is necessary.

Competition is what makes our economy thrive. Are Visa and MasterCard really getting too big for their britches, or are they trying to keep things secure and regulated? Visa responds that “HR 5546 remains and anti-consumer bill that would mandate unnecessary regulatory intervention into a fiercely competitive industry that is benefiting consumers, merchants, and financial institutions.”

While merchants out there are probably cheering on the intervention of Congress, this may not be a great thing. The card processing industry is complex and involves more than just the rate a merchant is paying. The Credit Card Fair Fee Act allows merchants to negotiate Interchange rates, which could cause merchants to lose out on the service, customer support, equipment upgrades, and personal attention that their card processing company provides. Visa and MasterCard are not going to provide any extra services if negotiations occur; in fact lower Interchange rates will probably cause the opposite effect.

Should The Government Be Involved In Interchange Legislation?

Michael Brooks — Thu, 02 Oct 2008 23:45:37 +0000

For years the government has taken a Laissez Faire approach to Interchange Rates, but recently the U.S House Judiciary Committee has begun heavily campaigning to control them. Proposed legislation (HR 5546 The Credit Card Fair Fee Act) would require Visa and MasterCard to negotiate Interchange fees directly with merchants. This would put a stop to a credit card processing company’s ability to set non negotiable fees. If the merchant and the credit card company are not able to come to terms, then they would have to submit their final offers to binding arbitration by a three judge panel.

If this new bill is passed by Congress, it is could potentially create more of a mess and ultimately higher costs. I am sure there are millions of businesses in the U.S alone, and if it passes, Visa and MasterCard are going to be getting a lot of calls from people looking to negotiate their fees. This means they will have to hire more staff to take the calls, and possibly even create systems to track all the various negotiated rates. So will this bill help the situation, or only put a band aid on what merchants believe to be an issue? Fees collected generally go to rewards programs, credit losses, and operating costs.

There are a total of 23 Bills regulating the card processing industry; some of the key ones are as follows:

SB 349/HB 2856 – Disclosure

A contract authorizing a merchant to accept a credit card or debit card may not: (a) Give a financial institution the right to charge a merchant or deduct from the merchant account the cost of a credit card or debit card transaction because the cost of the transaction exceeds a predetermined amount; or (b) require a merchant to limit or waive its rights under this act.

SB 348 – Sales tax

Discount rates, transaction charges, interchange rates or any other charges or fees charged to merchants or deducted from credit card or debit card sales for processing credit card or debit card transactions shall not be applied to the tax portion of any credit card or debit card sales.

HB 7775/S5035 – Disclosure

Whenever a contract authorizing a merchant to accept a credit card or debit card specifies that the merchant is bound by the rules of a financial institution, the contracting financial institution must: (1) Give the merchant access to the complete rules referenced in the contract, notify the merchant of any rule additions or modification, and provide a copy of the new or modified rule; (2) provide a complete schedule of interchange fees, credit card and debit card transaction rates and any other fees that the financial institution charges to merchants, as well as provide an explanation of which rates apply to the merchant and the situations in which those rates apply; and (3) not require a merchant to agree not to disclose the contracting financial institution’s rules or rates as a condition of receiving access to the rules and rates.

Whether or not Congress takes action is still up in the air. The important thing is that they make an educated decision. I will keep you posted on the outcome.