Myths and Facts about H.R. 6248: The Credit Card Interchange Fee Act

Representative Peter Welch (D-VT) has introduced legislation in Congress called The Credit Card Interchange Fee Act.

Nearly 16,000 financial institutions, 24 million merchant locations in more than 150 countries, and billions of cardholders comprise our global electronic payments system today – a system so efficient that it processes more than 10,000 transactions per second. Before any legislation that could upset the delicate balance in this highly efficient marketplace is considered, it is vital to first know the facts in the debate, and not be misled by oversimplification of this highly complex system.

Here are some of the myths – and the important facts – regarding this harmful legislation.

1. “Interchange fees are the hidden fees that merchants and consumers pay to credit card companies and their banks every time a credit card is used.”
   
   Consumers do not pay interchange fees. This is a fee paid between a merchant’s bank and the cardholder’s bank or credit union. When a merchant chooses to accept electronic payments in their business, they pay what’s known as a “merchant discount fee,” a portion of which is “interchange.” This is a cost of doing business, and therefore no more a “hidden fee” for their customers than is rent, employee benefits, utilities, or the cost of accepting checks or cash.
   
   
2. “The United States has the highest interchange rates in the world.”
   
   This statement uses flawed logic. U.S. merchants enjoy among the lowest overall average fees in the world when they accept electronic payments. While the interchange portion – the portion paid to the cardholder’s bank or credit union – may be lower in other countries, the remainder of the merchant discount fee is higher, making the overall cost that merchants pay in other countries often higher than in the United States.
   
   
3. “Interchange fees cost American consumers $36 billion each year.”
   
   American consumers do not pay interchange fees. By this logic, one could also argue that American consumers pay trillions of dollars in retailers’ rent every year.
   
   
4. “The average family pays $300 a year in interchange fees.”
   
   Again, interchange is in no way a consumer fee. This debate is about the largest and most profitable retailers in the country wanting to shift one of their costs of doing business onto consumers. These large retailers don’t believe they should have to pay for the significant benefits they receive when they accept electronic payments, including reduced fraud, guaranteed and fast payment, increased revenue, and the ability to operate on a global, 24/7 stage through eCommerce. Shifting this cost onto consumers will result in reduced availability to affordable credit and reduced competition among the existing 16,000 banks and credit unions issuing cards today.
   
   
5. “Only 13 percent of interchange fees go toward processing/transaction costs…44% of interchange fees subsidize rewards programs.”
   
   Diamond Consultants – the group responsible for this research – learned that their study on interchange fees was being referenced inaccurately by merchant lobbyists on Capitol Hill, and repeated by several Members of Congress. As a result, they posted a letter of explanation on their Web site saying that the references being made to this study are “inappropriate:”
   
   “Furthermore, the 13 percent figure (for processing) and the as much as 44 percent figure (for issuer rewards) tHat have been quoted from the study do not include all of the costs of the payments system, nor do the figures reflect how issuers actually spend interchange fees… There are many costs, including credit losses, fraud losses and operating costs to pay for statements, online access and other costs that are not included in those percentages… We find it unfortunate that a report that was actually intended to provide valuable insights to our clients…could be deployed by others to stifle innovation and hamper free market forces.”