Congress May Limit Credit Card ‘Interchange’ Fees

Published December 1, 2009

Legislation to limit credit card interchange fees, also called “swipe” fees, is moving through Congress, cheering some consumer and retail groups and worrying others, who say they fear it would harm consumers.

In October the House Financial Services Committee held hearings on HR 2382, the Credit Card Interchange Fees Act of 2009, introduced by Congressman Peter Welch (D-VT). The hearing came a week after 7-Eleven® stores around the country collected and delivered to Congress more than 1.6 million signatures from people calling for lawmakers to prohibit credit card networks and card-issuing banks from charging transaction fees the petitioners consider unfair.

Critics of the proposed legislation say it could end up hurting consumers by reducing credit card perks and resulting in new card fees.

“Consumer response to this grassroots petition drive exceeded expectations,” said 7-Eleven® President and CEO Joe DePinto in a statement. “Customers share our frustration over the hidden fees that American retailers and, ultimately, consumers are forced to pay. They, too, want Congress to take action to regulate these unfair fees, which are the highest in the industrialized world.”

2 Percent Charge

Merchants pay an interchange fee each time someone uses a credit card for payment. The fee, typically 2 percent of the purchase price, covers the cost of the electronic system used to process the payments.

“Because of their overwhelming market share, Visa, MasterCard, and their issuing banks operate with impunity and without fear of losing customers to competitors. Why? Because they have none,” said John Emling, senior vice president for government affairs at the Retail Industry Leaders Association, of which 7-Eleven® is a member. “Without real competition in the credit card market or transparency in rate-setting, fees will continue to rise, indiscriminately hurting the merchants and consumers who bear the cost.”

Emling said the fees have tripled since 2001, despite improved technology. For many retailers, he said, it costs less to process checks than credit or debit card transactions.

Bill Hardekopf, chief executive of, a free, independent Web site that helps consumers compare credit cards, said in a statement that many cardholders may not know of the fee. He also noted it is charged as a percentage of the whole transaction, including sales tax, resulting in a larger fee than if it were charged only on the merchandise.

Potential Downside

“But there is another side of this coin,” Hardekopf noted. “The question has to be asked: Would retailers roll back the price should the interchange fee be decreased?

“If regulations and restrictions pass, credit card issuers and processors will lose significant revenue and will look to cardholders to help make up for this drop in revenue,” Hardekopf said. “We have already seen issuers make substantial changes in the credit card industry in order to make up for the revenue they expect to lose when the provisions of the CARD Act take full effect. So, restricting the interchange fee could lead issuers to assess additional fees in other areas. Interchange fees also help fund rewards for credit cards. Smaller interchange fees could mean smaller rewards.”

The CARD Act (Credit Card Accountability Responsibility and Disclosure Act of 2009) will go into effect in February 2010. It restricts certain credit card practices in ways that many in the industry believe will reduce credit card revenues.

$427 per Family

“In 2008, the average U.S. family paid an estimated $427 in interchange fees, nearly triple the amount they paid in 2001,” said House Judiciary Committee Chairman John Conyers, Jr. (D-MI), a sponsor of the interchange fee legislation, in a statement. “With consumers being squeezed from all sides, and big banks receiving federal bailouts, it is time that banks and merchants come together to negotiate fair interchange rates.”

The Merchant’s Payment Coalition and the National Retail Federation estimate banks received about $48 billion in interchange fees in 2008, up from $16 billion in 2001.

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.