By John Eichberger
May marked a major turning point in the fight against the abusive practices of the credit card companies. Central to these developments was the enactment of the Credit Cardholders’ Bill of Rights, which protects cardholders by imposing significant regulatory requirements on credit card companies and their issuing banks. Many banks and credit card companies thought this would have been the last time Congress took interest in their business model — they were wrong.
NACS and its allies in the Merchants Payments Coalition have not let go of the debate without ensuring meaningful progress in the effort to change the way credit card companies treat merchants — specifically, how they determine interchange fees and establish the rules for merchants. In fact, we’ve used the increased attention on the credit card companies to push the interchange (also known as “swipe fees”) issue more into the forefront of congressional interest.
On May 12, Senate Banking Committee Chairman Chris Dodd (D-CT) stated on the Senate floor: “I have promised my colleagues who expressed an interest that we will take this [issue of interchange fees] up.”
On May 22, President Obama signed into law the Credit Cardholders’ Bill of Rights, which directs the Government Accountability Office (GAO) to conduct a study on interchange fees and report back to Congress by January 2010. The GAO is to review:
- Rules governing the disclosure of interchange fees to consumers and merchants
- The ability of merchants to negotiate with card associations and banks
- The costs incorporated into interchange fees and how they vary among cards
- The consequences of fee nondisclosure
- The relationship of fees to actual credit card issuer risk
- Merchants’ accessibility to credit card operating rules
- Regulatory actions of other government jurisdictions on interchange fees and the effect of those actions on consumers
- The ability of merchants to discount for other forms of payment
- The relationship between interchange fees and the ability of small financial institutions to compete
On May 13, Representatives Peter Welch (D-VT) and Bill Shuster (R-PA) introduced H.R. 2382. This bill would:
- Eliminate additional charges for premium cards or access devices
- Allow merchants to offer a lower price for customers who pay with lower cost payment types or devices
- Allow merchants to choose not to accept certain cards that have especially high fees
- Allow merchants to ask a customer if he is willing to use alternative payment
- Allow a business to not accept cards at a given location
- Prohibit “Reason Code 96” charge backs
- Allow merchants to set a minimum and maximum limit for purchases initiated with a credit card or other payment device
- Allow merchants to choose which financial routing network to use (Cirrus, NYCE, Interlink, etc.) based on what is least costly
- Prevent credit card companies from requiring any merchant to conduct any minimum number of transactions for using such network’s payment device during any given time period
- Require MasterCard and Visa to disclose all terms, rates and conditions to the FTC and allow the FTC to review and determine if any practices are anti-competitive
- Require full disclosure to the Fed and the public of interchange or other fees collected from merchants
- Require credit card companies to disclose to consumers the interchange rates they are charging
On June 4, Representatives John Conyers (D-MI) and Bill Shuster (R-PA) introduced H.R. 2695. On June 9, Senator Dick Durbin (D-IL) introduced S. 1212. These bills would provide merchants with limited anti-trust immunity to engage in collective negotiations over the fees and terms for access to the system. The bills would also establish a mandatory period for negotiations between retailers and providers.
Under S. 1212, if negotiations fail to reach a voluntary agreement, an arbitration panel would be appointed to review final offers proffered by the two sides and select the one offer that most closely represents what would be fairly negotiated in a perfectly competitive market.
Under H.R. 2695, negotiations would be observed by the U.S. Attorney General who would then report to Congress within seven months concerning the quality and progress of the negotiations and provide recommendations for further congressional action if deemed necessary.
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At press time, the House Energy and Commerce Committee was scheduled to consider legislation granting the Food and Drug Administration with new authority to ensure the safety of the nation’s food supply. The legislation would create an official federal registry of food providers, a user fee to fund the FDA’s activities, mandatory recall authority, traceability of food products from farm to fork, mandatory federal notification of foodborne illnesses outbreaks, and a variety of other policies.
NACS generally supports efforts to improve the safety of the nation’s food supply — and of course, its members are concerned with the health and well being of their customers. However, we also want to be sure that the proposed legislation doesn’t represent an undue burden on retailers.
During consideration by the House Subcommittee on Health, several representatives focused on the legislation’s effect on retailers. Specifically, they wanted to know if retailers would be subject to the mandatory recall, traceability, record keeping and food incident reporting requirements of the bill. (Those provisions have caused concern among Republicans and some Democrats who worry about effects on small farmers or mom-and-pop food businesses.) Committee counsel confirmed that these groups would be subject to the new regulations.
Concerned to what degree retailers would have to follow specific reporting and traceability standards, NACS submitted a letter to the Energy and Commerce Committee seeking congressional guidance to ensure that the legislation accommodates the unique business nature of the convenience industry.
Delivering such a letter alerts the Committee to issues that concern retailers — issues they may not be familiar with — and provides them with documentation to support any decision that would provide guidance to the FDA.
Reminding the Committee that the majority of convenience retailers are small businesses that would be affected by the legislation, NACS Government Relations Manager Julie Fields wrote:
NACS members are ready and willing to comply with [the] requirements, but we want to ensure that doing so will benefit the American people. We therefore respectfully request that the Committee make clear to the Food and Drug Administration — whether through legislative or report language — that the implementation of these matters is done in a manner that will ensure that large and small retailers alike will be able to comply with the Act’s requirements…
[The bill] would impose civil penalties…of up to $100,000 per individual or $500,000 per corporation...In 2008, the average convenience store reported an annual pre-tax profit of approximately $40,000, with only a portion attributed to foodservice operations. Fines of the magnitude provided in this bill would effectively put these facilities out of business. We recommend that the Committee reconsider the amount of the authorized fines and…we ask that [the bill] provide for civil penalties to be assessed only against individuals who knowingly violate.
NACS will continue to advocate for a workable solution that will not impose undue burdens on retailers. Watch NACS Daily for updates. To sign up for the NACS Daily e-newsletter, visit www.nacsonline.com/nacsdaily.
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In early June, sponsors of competing legislation to establish a federal menu-labeling program reached a compromise agreement, which was included in the Senate version of a comprehensive health reform package scheduled for a committee markup in mid-June. The competing bills were:
- The LEAN Act: Requires restaurants and other foodservice establishments that serve prepared foods — and have 20 or more locations — to disclose in writing the calories contained in each menu item on the menu, menu board or in designated alternative ways, such as a menu insert or a sign next to the menu board. Additional information, including total fat, cholesterol, total carbohydrates, dietary fiber, calories from fat, saturated fat, sodium, sugars and protein, would be available in writing upon request. The bill is supported by a coalition led by the National Restaurant Association because it would preempt all state and local regulations.
- The MEAL Act: Requires menus to include the following information next to the listed food item: calories, saturated fat, trans fat, sodium and the percent daily value of each. For menu boards, calories must be listed next to the food item and the other three pieces of information must be available in writing. Unlike the LEAN Act, this bill would preempt state and local requirements that are in conflict with federal legislation, but expressly authorizes state and local entities to impose further requirements.
Advocates of both bills endorsed the Senate compromise. The agreement would require companies with 20 or more stores operating under the same name to disclose on a menu or menu board the number of calories per menu item next to that listing. Food on display for sale must be accompanied by a food tag listing the calories. Additional information must be provided in writing upon request.
The key provision from a retail perspective is that the compromise effectively preempts state and local regulations and does not allow the imposition of more stringent requirements.
At press time, NACS was seeking adjustments to the legislation that would ensure those convenience retailers who didn’t have menu boards would not be required by the FDA to install them. And, similar to our efforts in food safety legislation, we are seeking congressional guidance to ensure the rules implementing this legislation properly accommodate the unique business nature of the convenience industry.