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Senator Richard Durbin (D-IL) tells Visa and Mastercard to halt the planned increase of unregulated credit card fees as the change is set to take place.
Durbin and a group of bipartisan legislators have sent a letter to the CEOs of Visa and Mastercard urging the companies not to proceed with plans to raise their credit card interchange fee rates later this month.
“Raising your interchange fee rates even higher will undoubtedly increase the already high costs consumers are facing and add to inflationary pressures, which is the last thing American families deserve right now,” the members of Congress said.
“We strongly urge you not to do so.”
The increase, which is estimated to add a further $1.2bn to merchants’ costs, has been on the table for two years now. Originally planned to take place in Spring 2020, the raise was postponed by one year due to the COVID-19 pandemic.
In 2021, the card giants again decided to halt their plans under pressure from Durbin and representative Peter Welch (D-VT) who stressed that increasing fees was “ill-timed” as the economy was struggling to recover from the pandemic.
Durbin was the chief sponsor behind the US debit card legislation, adopted as part of the post-financial crisis Dodd-Frank Act 2010.
Although the so-called Durbin Amendment altered the competitive structure of the debit card payment processing industry and capped debit card interchange fees for banks with over $10bn in assets, it left the credit card industry off the hook.
“If Visa and Mastercard operated in a market environment with real competition, we would not be troubled by your planned fee increases,” the lawmakers wrote.
However, the two companies have a clear duopoly in the current electronic payment system, and “you impose fees and rules that merchants, consumers, and small banks have no real choice but to accept.”
“Because normal competitive market pressures and economics are not currently at play to constrain your fee rates, we are speaking out.”
The fact that the credit card industry has so far remained unregulated in the US means that merchants pay significantly higher costs for credit card transactions in the country than in other parts of the developed world.
For example, US merchants pay on average 2.22 percent of the transaction when a credit card is used, which is estimated to be four times higher than the UK rate according to the Merchants Payments Coalition.
Credit cards account for around 55 percent of the total value of US card payments, yet generate nearly three-quarters of fee revenues.
As a result, last year merchants paid $77.48bn in total credit card fees, whereas they paid only $28.06bn for debit card transactions, according to the Nilson report.
Although this difference can partly be attributed to the higher risk and costs associated with issuing credit cards, some have argued that this is also evidence of the difference in the regulatory fee environment for the two types of cards.
The lawmakers point out that even in China, credit interchange fees are capped at 0.45 percent. “[If] that rate was not enough for profitability, we suspect both of your companies would not be working so hard to convince the Chinese Communist Party to allow you to operate in China.”
This references attempts by US card companies over many years to persuade the Chinese government to open its market and process applications by the card schemes to clear and settle bank-card transactions in the country,
They also note that both Visa and Mastercard, as well as large institutional card-issuing banks, were “enormously profitable” in 2021, even though they refrained from raising interchange fee rates last year.
“We urge you to withdraw your plan to raise credit and debit card fees on American business owners and hard-working American families. As Americans are dealing with the highest rate of inflation in decades, your profits are already high enough and any further fee increase is simply taking advantage of vulnerable Americans.”
Merchant advocate groups have welcomed the letter.
“It’s very significant that lawmakers from both parties and both chambers of Congress have come together to stand up against the global card giants to protect small businesses and consumers,” said Anna Ready Blom, a member of the Merchants Payments Coalition Executive Committee and director of government relations at the National Association of Convenience Stores.
“This shows that this is an issue that crosses political lines,” she stressed.
“Senators and representatives from both sides of the aisle coming together to address this issue shows that Congress recognizes the impact these fees are having on the small businesses and consumers they represent,” National Retail Federation’s vice president for government relations, banking and financial services Leon Buck added.
Meanwhile, Mastercard stressed in an email statement that these changes are the first such changes in more than a decade.
It also argues that the changes include not only increases but also some decreases.
“For example, we’re decreasing costs for all merchants with transactions below $5. As people are living increasingly on-the-go digital lives, we’re looking to help support merchants in providing their customers the best choices and shopping experiences possible,” the card giant said.
The American Bankers Association (ABA) did not respond to a request for comment by the time of publication. Nonetheless, the bankers’ lobby group released an analysis in late March, defending the credit card market as one that is highly competitive.
“Industry competition keeps prices low, promotes innovation, and gives consumers the power to choose the card that works best for them,” the group wrote.
Visa also did not respond to a request for comment by the time of publication.
