Interchange Fees: Maintaining a Convenient, Safe and Affordable Payment System For Consumers (H.R.)
Credit unions issue debit cards and credit cards to their members. Interchange revenue from the use of these cards is vital to credit unions to support the administrative expense of card programs. Interchange fees allow business costs, including both operating expenses and the risk of consumer nonpayment, to be shared by the payments participants.
THE LEAGUE opposes statutory and rulemaking proposals that would affect interchange fees as such action would adversely affect consumer options, competition and technological innovation. Government intervention in interchange will result in increased cost for consumers, decreased competition, and an unfair disruption of the marketplace.
Increased costs for consumers: For consumer-members, government intervention in interchange fees would likely result in cost-shifting from merchants to consumers and increased fees for consumers to obtain debit and credit cards. Interchange enables and supports the convenience of credit cards and debit cards with competitive rates and terms.
Decreased competition for consumers: Debit and credit cards obtained through credit unions offer competitive rates and consumer-friendly terms. By managing a debit or credit card account through a credit union, a member is able to effectively manage their bills and establish a strong credit history. Interchange enables credit unions of all sizes to issue debit and credit cards for its members.
Unfair disruption of marketplace: The merchants’ legislative proposals would unfairly disrupt a functioning marketplace by giving merchants an enormous competitive advantage over card-issuing credit unions in interchange negotiations. Any resulting reduction in the merchants’ interchange responsibility would shift to the consumers; resulting in higher fees and reduced access to a convenient and cost-effective payment card system.
In November 2009, the Government Accountability Office released a report on interchange which validates many of the points that credit unions have been making for several years. Among the report’s findings, the GAO stated that:
- “Consumers have benefited from competition in the credit card market, as cards often have no annual fees, lower interest rates than they did years ago, and greater rewards.” (Executive summary)
- “Many industry participants and others agreed that the costs of card acceptance might shift from merchants to card holders if interchange fees were limited, card surcharges permitted, and interchange revenues decreased.” (p.55)
- “Increased competition for acquiring services provides merchants with considerable choice and opportunities to negotiate and lower some of their card acceptance costs.” (p.35)
- “Eight of the nine small merchants we interviewed reported getting solicitations – some frequently – for their acquiring business or have shopped their acquiring business.” (p.36)
- “Representatives of credit unions and community banks reported that revenue from interchange fees allowed them to cover expenses related to offering credit cards and compete with large issuers to offer their customers credit cards.” (p.22)
Discussions regarding what value should be placed on the use of electronic payments should be within the purview of the industry participants. THE LEAGUE believes interchange is more appropriately addressed by the market participants, without any antitrust exemption advantage for the merchants. Government interference in this working market stands to harm all participants, including consumers, merchants, and credit unions.
We urge Members of Congress not to cosponsor and oppose any legislation (H.R. 2382/H.R. 2695/S. 1212) that would affect the interchange received by card-issuing credit unions.
