Card Associations and Banks Under Fire in House
It’s a very rare occasion on Capitol Hill to witness both sides of the aisle come together and take a stance on a controversial and complicated issue. This happened yesterday in the House Judiciary Committee’s Antitrust Task Force hearing on credit card interchange fees as both Republicans and Democrats alike took turns hammering the credit card companies and banks for their anti-competitive practices regarding interchange.

The Task Force called five witnesses:

• John Buhrmaster, president of First National Bank of Scotia, New York; representing the Independent Community Bankers Association
• Mallory Duncan, senior vice president and general counsel, National Retail Federation
• Edward Mierzwinski, consumer program director, U.S. PIRG
• Tim Muris , counsel, O’Melveny & Meyers; a consultant to Visa
• Steve Smith, president and CEO, K-VA-T Food Stores, Inc.; representing the Food Marketing Institute

Witnesses representing the banks and Visa said competition was in place and that there was nothing wrong with the system in which interchange fees were determined. They even said that merchants have choices and that the consumer actually benefits from the interchange fees because they get a better quality credit card. The consultant to Visa said that merchants were freely able to charge cash prices that were different from credit prices and that they could advertise this anyway they wanted to. However, he didn’t have a satisfactory response when questioned about the recent California incident where a convenience store was threatened by Visa to take down their advertisement of a cash discount.

The witnesses representing retailers and consumers had their facts down and they put everything wrong with the interchange system out in the open. They cited the unfair rules that merchants must abide by but can’t see. They discussed the terms of contracts that say they are not allowed to negotiate with different rates for thousands of different cards. They asked for transparency and honesty, they asked for fairness and competition in the marketplace, and they asked for a simple system that all retailers could easily navigate. 

None of this was of great surprise to anyone. Rep. John Conyers, chairman of the Judiciary Committee, proclaimed that this situation “didn’t look too good for the credit card companies.” Representatives on both side of the aisle were incensed that businesses and consumers are getting the short end of the stick because consumers are ultimately paying for the cost of transactions. Committee members asked for more documentation and set out an agenda for future hearings on the issue. They acknowledged that there are conflicting facts to the argument and they want answers. While we must recognize that Congress usually moves slowly on issues like this and that there are battles to be fought in court, this is a good sign for retailers and step that shows that this issue is worth fighting for. It was a good day for retailers.

Federal Excise Tax Increase Passes Senate Committee
Also this week, the Senate Finance Committee passed a bill to reauthorize the State Children's Health Insurance Program (SCHIP) with a 61 cents per pack increase in the federal excise tax on tobacco. With a bipartisan vote of 17-4, Finance Chairman Max Baucus said he believes he might be able to override a possible presidential veto of the bill. The House has still not started its work on the bill, but there are plans to do so before they leave town for the August recess.

Next week is set to be another busy one, so stayed tuned.

John Eichberger
Vice President, Government Relations