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“In addition to cash, checks and traditional US payment networks, we also compete today with digital wallets, ‘buy now, pay later’ solutions, fintech and big tech, real-time payment and cryptocurrency,” Bill Sheedy, a senior adviser to Visa CEO Al Kelly, said during the hearing. “Regulatory interventions focused exclusively on card networks would shift consumer spending from networks like Visa to more expensive payment methods with more risk, less reliability, and fewer protections and security.”
The hearing was convened to question executives from credit card companies, banks and retailers, as well as consumer advocates, about the potential impacts of regulating credit card interchange fees. Visa and Mastercard have been planning fee increases since 2020, a decision delayed by the pandemic and merchant protests.
The Durbin Amendment, passed in 2011, caps debit card interchange fees at 22 cents plus 0.05% of transaction fees. However, there are no regulations on credit card interchange fees in the United States. Some members of the Judiciary Committee were concerned about the impact of high fees, in addition to inflation, on ordinary consumers and small businesses, while others were wary that limiting what credit card companies may charge for interchange fees could actually reduce competition and consumer options in the marketplace. .
There was no clear consensus at the end of the hearing on how or if Congress should cap interchange fees. However, the Q&A session shed some light on how Congress could regulate a vital source of revenue for an emerging industry.
Most senators on the Committee were quick to dismiss frequently repeated claims from Visa and Mastercard about increased fintech competition, with Sen. Richard Blumenthal calling it “apples and oranges.” But some of Visa and Mastercard’s other arguments seem to have carried more weight.
The executives said the fees were reasonable, considering the fraud protection, rewards, convenience and increased purchasing power they offer consumers. Fees have risen appropriately as cybersecurity risk increased during the pandemic, for example, after issuers said they needed to devote more resources to fraud protection. Visa and Mastercard executives also repeatedly referenced a Government Accountability Office report that the Durbin Amendment reduced the availability of financial services for the unbanked, which appears to have raised concern among some senators.
Yet consumer advocates and marketers have strenuously rejected these claims. The GAO study was a flawed “survey” with misleading questions, said Doug Kantor, general counsel for the National Association of Convenience Stores. Laura Shapira Karet, CEO of the Giant Eagle grocery chain, pointed out that Visa and Mastercard control more than 80% of the market and engage in what “works like” and “speaks like” a duopoly by setting fees for general interchange. Ed Mierzwinski, senior director of the Federal Consumer Program at US-PIRG, quoted Visa’s chief financial officer during a recent earnings call as saying inflation is a “net-net gain” for the company because interchange fees are charged as part of the total. gross receipts.
The most obvious regulatory step would be for Congress to write something like the Durbin Amendment for credit card transactions, putting a cap on transaction fees. But the senators also made other suggestions. Senator Mazie Hirono, for example, asked if removing the so-called “respect all cards” rule would increase competition. The rule is part of many credit card issuers’ contracts with merchants and requires merchants to accept all credit cards offered by an issuer. This includes a premium rewards card with higher fees, on which companies like Visa and Mastercard encourage well-heeled consumers to spend more, ultimately benefiting retailers.
Senator Amy Klobuchar asked if better enforcement of antitrust laws could solve the problem. Consumer advocates said this would help, but there were also big gaps in the existing legislation. “This is an area where the Justice Department’s antitrust division has been active over time, as has the Federal Trade Commission, but there is still a long way to go,” Kantor said.
“Very good,” Klobuchar replied.
Correction: An earlier version of this story misspelled Ed Mierzwinski’s name and an instance of the Durbin Amendment. This story was updated on May 4, 2022.