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Legal, Regulatory, and Privacy Issues

Critics challenge retailers on opposition to interchange fees

Summary

Critics have responded to merchant opposition to the credit card fees they have to pay.

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Merchant opposition to the interchange fees charged by credit card banks has been a big news item in the world of credit cards lately.  Retailers have charged that these fees raise prices, with some having gone so far as to take out ads in newspapers stating that interchange fees end up punishing the consumer.  But according to some critics of the merchants, they do not have the best interest of the credit card user in mind when they oppose these fees.

Many stores have asked the government to lower interchange fees, which the merchants consider to be too high.  In lawsuits and appeals to state and federal government, retailers allege that the method of pricing the fees is anticompetitive.  Merchants note that they have little option but to accept interchange fees for taking credit cards.

The argument that the interchange fees violate antitrust laws (because MasterCard and Visa establish uniform fees for member banks to charge) has so far been rejected by courts, which have noted that there are other credit card and payment methods, and because of the efficiencies of this pricing system. Without the fee-setting method in place, the card processors say, stores would need to negotiate with thousands of different banks to process customers’ credit cards.

In Australia, such cost transfers took place when the government listened to merchants and set the fees.  After the price controls were instituted in Australia, consumers there encountered higher annual fees and fewer reward programs such as airline miles.  According to a study, 30 to 40 percent of banks’ lost interchange revenues were simply passed on to cardholders via higher costs.  Local newspaper the Australian reported that these consumers experienced no corresponding decline in merchandise prices — although Aussie retailers did save over $450 million in U.S. dollars.

Critics expect that if interchange fees are lowered in the U.S., the same would happen.

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Published: November 14, 2006

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