Retailers Welcome Hearing on Secret Credit Card Fees

The National Retail Federation welcomed a congressional hearing being held today on nearly $40 billion in secret fees that credit card companies force merchants to pass on to consumers annually, saying the hearing could lead consumers to demand that credit card companies disclose and reduce the fees.

“Consumers know about the interest they pay and late charges and over- limit charges,” NRF Senior Vice President and General Counsel Mallory Duncan said. “What they don’t know is that credit card companies are collecting a secret checkout fee every time they use their cards. This hearing is going to help bring that secret fee into the spotlight and let consumers know just how much money credit card companies are taking out of their pockets without telling them. The more consumers learn about these fees, the more they’re going to demand that credit card companies be honest about them. And once consumers know how much they’re paying, competition can help drive these rates down.”

The House Energy and Commerce Committee’s Subcommittee on Commerce, Trade and Consumer Protection is scheduled to hold a hearing today on “The Law and Economics of Interchange Fees.”

The subject of the hearing is interchange, a secret fee of about 2 percent that Visa, MasterCard and their member banks charge consumers each time a credit or debit card is used. Visa and MasterCard’s non-negotiable contracts with merchants require that the fee be built into the advertised price of merchandise, forbid the fees from being shown on receipts, and effectively block cash discounts from being offered in most situations. Other credit card companies don’t charge interchange as such because of differences in the way payments are handled, but nonetheless charge similar fees to process transactions.

Visa and MasterCard kept interchange fees largely secret for years, but the issue has emerged as a major public policy concern in the past year. The Federal Reserve held a conference on the subject last May, and the House last fall passed legislation – still pending in the Senate – that would have required a Federal Trade Commission investigation into interchange’s role in rising gasoline prices. Nearly 50 lawsuits have been filed in federal court claiming that interchange practices violate federal antitrust law.

NRF has led the retail industry’s efforts to bring interchange fees under control, and last year helped form the Merchants Payments Coalition, which is chaired by Duncan. The MPC is a group of trade associations representing retailers, restaurants, supermarkets, drug stores, convenience stores, gas stations, on-line merchants and other businesses that accept credit and debit cards and are concerned about the increasing interchange fees charged by banks and credit card companies to process credit and debit transactions.

Visa and MasterCard alone collected $27.6 billion in interchange fees during 2004, while transaction fees charged by other credit card companies brought the total to $39.2 billion, according to Merchants Payments Coalition figures.