Interchange Fees Rank No. 2 in Retailers Debit Column
WASHINGTON -- Paper or plastic used to refer to consumers' choice of bag for their purchases. Now it seems to hold true for method of payment too as more and more consumers rely on credit or debit cards when shopping. But those transactions come with a cost for the merchant -- a cost that some say is too high to pay.
In advance of tomorrow's eighth public hearing on the Durbin amendment, which would set limitations on interchange fees, representatives from retailers and small businesses described why the government needs to step in and regulate the industry. In a conference call today, organized by the Merchants Payments Coalition, Rep. Peter Welch (D-VT) emphasized that credit cards are good but the monopoly power held by some companies like Visa and MasterCard is not. In fact, he said, interchange fees tripled since 2001 even as the cost of processing these transactions decreased.
"It is one thing to have a reasonable fee for good service, but it is another to have a monopoly," he said, adding the Durbin-Welch Amendment would provide protection for merchants and set a $10-billion exemption for small banks and credit unions.
Welch also explained that some arguments lobbed against setting interchange fee limits do not carry much weight. For example, some banks have argued that giving small banks and credit unions an exemption would force credit companies to adopt a two-tier approach -- something they will not do. However, he said, Visa already has a two-tier fee approach in place.
Despite arguments against the amendment, retailers and small business owners alike still demand change is necessary. "Over the last decade [interchange fees] have been the fastest growing expense that we have, even over healthcare costs," explained Doug Kantor, counsel for the Merchants Payments Coalition. "They are the second highest operating expense for most merchants in the U.S. second only to labor costs."
The fees, he contended, have become a burden on merchants resulting in some having to make tough decisions: if they want to open new locations or offer healthcare plans to employees, merchants may have to let some other employees go. "These fees have exceeded the industry's profits for the last four years in a row," Kantor said, adding it could be a fifth once 2010 final figures come in.
Todd McCracken, president and chief executive officer for the National Small Business Association, added the topic of interchange fees is a big issue for his organization and its members, as well as a source of frustration. "They are deeply frustrated that they have no way to control them," he said. "There is no competitive marketplace." He added the market revolves around buyers and sellers, not just sellers. "This is one of those rare situations where some government regulation is warranted," McCracken explained. "This bill improves the function of the marketplace; it does not get in the way of the marketplace."
Dennis Lane, a 7-Eleven franchisee in Quincy, Mass. confirmed that interchange fees are, "without a doubt," his biggest expense after labor and he has no control over it. Echoing McCracken's call for a competitive marketplace, Lane said "If I don’t like what Coke or Pepsi is charging me I can sit down with them and negotiate."
Lane stresses that retailers and small business owners are willing to pay for credit card and debit card transactions. "We understand and accept that there is a fee for interchange transactions. We are not looking for a free ride; we are looking for a fair and reasonable fee."
He also believes the federal government should be able to regulate credit card and debit card transactions because they are a form of currency. "Transactions costs money to execute and I am willing to pay my fair share," Lane added.