Credit Card, Small Business Coalition Again Trading Fire Over Interchange Bills

Lobbying intensifies, as reports circulate that Senate committee will hold a hearing

It is often said that where you stand depends on where you sit. That is certainly true when it comes to the furious debate over credit card interchange legislation.

If you are the president of a credit union, the big-box retailers are trying to save money, which they will keep and will not pass on to the consumer. If you own a small convenience store, credit unions and banks are trying to perpetuate the monopoly that Visa and Mastercard have on the credit card system.

The lobbying on either side of the issue has intensified, as reports have circulated that the Senate Judiciary Committee is preparing to hold a hearing on the interchange legislation sponsored by its chairman, Sen. Dick Durbin, D-Ill.

The interchange bill, S. 1838, is being championed by Durbin and Sen. Roger Marshall, R-Kan. It would require the federal reserve to issue rules that guaranteed that large credit unions and banks currently using the four-party card processing system be required to use at least one unaffiliated network in addition to VISA and Mastercard.

Merchants have said that would save consumers money, since it would inject competition into the credit card processing system.

That is not necessarily the case, according to Cornerstone Advisors, a consulting group hired by America’s Credit Unions and the American Association of Credit Union Leagues.

“Bill sponsors say [S.1838] is intended to ‘keep fees in check,’ but there are no requirements for a merchant to pass on savings to consumers,” Cornerstone said, in a study sent to members of Congress last week. The consulting group said that the Richmond Federal Reserve Bank reported that when a similar plan was instituted for debit cards, only 1.2% of merchants reduced their prices. Large retailers have little incentive to pass on savings that amount to pennies for individual items, Cornerstone said.

Visa, Mastercard, American Express and Discover route transactions from their credit cards through their networks, Cornerstone said, adding that enables them to monitor fraud with a single view of a cardholder’s activity. Card processing with multiple payment networks would create a fragmented fraud detection system that would not operate as well, according to Cornerstone.

The bill also could result in tighter credit policies, which also could limit credit for some people, Cornerstone said. “Americans with limited access to credit have few options from banks and credit unions if credit card lending is restricted or in some cases eliminated,” according to the consulting group.

However, Small Business Rising, a coalition that bills itself as a “a coalition of more than 40 organizations representing more than 300,000 independent businesses,” disagreed in a letter to Judiciary Committee members last week.

“We urge you to heed the calls of the small business community for this lifeline, which would spur competition and curtail the outsized power of the big banks and dominant credit card companies,” the coalition wrote.

The group said that concentrated market power is the single biggest threat facing independent businesses, adding that it is clear that the financial system benefits large corporations at the expense of small businesses and consumers.

“Our coalition partners have identified exorbitant credit card interchange fees — also known as ‘swipe fees’ — as a top issue undermining the ability of their small business members to serve their communities because these growing fees are eating into their margins,” the group wrote.