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FMI Urges Congress to Investigate Electronic Payment Fees

WASHINGTON -- The Food Marketing Institute (FMI) urged Congress to investigate "skyrocketing" electronic transaction fees and the lack of controls on those fees in testimony filed with the House Subcommittee on Financial Institutions and Consumer Credit. Among the reasons cited in the testimony by John J. Motley III, FMI senior vice president of government and public affairs:

* There have been 11 credit/debit fee increases in the past 12 months with still more expected this year.

* PIN debit fees are up 267 percent since 1999.

* Card association operating rules prohibit merchants from notifying consumers about the fees paid, including those that are a percentage of the transaction amount. Consumers have no knowledge of these hidden fees and thus cannot modify behavior.

* Card associations collected $29.2 billion in 2003 from electronic transaction fees.

According to a 2003 report by the TowerGroup, food retailers handle more than half of all electronic credit and debit card payment transactions. "At the same time," Motley said, "the cost of accepting these cards has been skyrocketing, often exceeding the 1 percent net profit margin of the typical grocery store."

Motley encouraged Congress to consider international efforts to control escalating electronic payment fees. "Several countries, including the United Kingdom, Australia and Israel, and the European Union have initiated caps on fees, changes in operating rules, antitrust/fair trade investigations, regulation of the allowed components of fees, studies and legislation.

"With fees that are higher than any of these international competitors, U.S. merchants and U.S. consumers are at a competitive disadvantage unless similar actions are considered in this country," Motley added.

FMI noted that the marketplace offers no incentives for financial institutions to reduce such fees. "The current interchange fee model is inverted from normal competitive market models -- more volume means more cost," according to the testimony. "Volume cannot be used to lower costs, [and] merchant fees are invisible to consumers."

This July, FMI called upon the Federal Reserve to investigate fast-rising and proliferating fees for electronic transactions, to explore ways to cap these costs and to disclose them to consumers. This study is expected to be released in 2005.
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