In the latest move by regulators and lawmakers to put more controls on the credit-card industry and its landing practice, a US House Judiciary antitrust panel held an interchange hearing on the bipartisan measure introduced by House Judiciary Committee Chairman John Conyers, a Michigan Democrat. The interchange hearing included testimonies from Thomas L. Robinson (Vice President of Regulations, National Association of Convenience Stores), Joshua R. Floum (General Counsel and Corporate Sec., Visa Inc.), Steve Cannon (Chairman, Constantine Cannon, LLP), Joshua Peirez (Chief Payment System Integrity Officer, MasterCard Worldwide), John Blum (Vice President of Operations, Chartway FCU), and Edward Mierzwinski (Consumer Program Director U.S. PIRG).The legislation would force Visa and MasterCard to directly negotiate with retailers the interchange fee for each transaction. If the parties fail to reach an agreement, a panel of three administrative law judges in the Justice Department will establish the rates. Visa and bankers say Conyers’ bill is anti-competitive, whereas retailers say the plan would spur competition, forcing Visa and MasterCard to negotiate fees.The interchange fee, about 2 percent of each transaction, is deducted from the merchant’s bank and sent to the cardholder’s bank. During the hearing, Visa general counsel Joshua R. Floum said the credit-card issuer’s average interchange has remained at 1.6 percent of the transaction’s value for a decade. Floum added that merchants have the opportunity to negotiate fees with the banks that process their transactions. On the other hand, retailers said banks that process their transactions are only to negotiate other parts of their total fees.Retailers filed lawsuits against Visa’s and MasterCard’s interchange fee politics, but received mixed results. A federal judge in New York is considering dozens of antitrust suits. Among the plaintiffs are US grocery chain Kroger and US drug chain Walgreen. In March, a US appeals court in San Francisco rejected similar lawsuits, ruling there was no evidence that Visa and MasterCard conspired with Wells Fargo Bank, Bank of America and US bank to set interchange fees. The fees charged by Visa member banks produced USD 25 billion in revenue in 2007.Interchange fees:Interchange fee is a term used in the payment card industry to describe a fee that a merchant’s bank (the “acquiring bank”) pays a customer’s bank (the “issuing bank”) when merchants accept cards using card networks such as Visa and MasterCard for purchases. In a credit card transaction, the card-issuing bank in a payment transaction deducts the interchange fee from the amount it pays the acquiring bank that handles a credit or debit card transaction for a merchant. The acquiring bank then pays the merchant the amount of the transaction minus both the interchange fee and an additional, smaller fee for the acquiring bank.These fees are set by the credit card associations, and are by far the largest component of the various fees that banks deduct from merchants credit card sales, representing 70% to 90% of these fees. Interchange fees have a complex pricing structure, which is based on the card brand, the type of credit or debit card, the type and size of the accepting merchant, and the type of transaction (e.g. online, in-store, phone order). Further complicating the rates schedules, interchange fees are typically a flat fee plus a percentage of the total purchase price (including taxes). In the United States, the fee averages approximately 2% of transaction value.In recent years, interchange fees have become a controversial issue, the subject of regulatory and antitrust investigations. Only very large merchants such
