Democrats shy from debate on interchange fees
WASHINGTON — Local business owners fed up with forking over a portion of their profits to credit card companies so customers can use Visa or MasterCard are unlikely to see legislative relief anytime soon.
Sen. Christopher Dodd, chairman of the Banking Committee, said he doesn’t want to take up the issue just yet despite the Senate being poised to pass legislation that would overhaul regulations governing the credit card industry.
“It’s a complicated issue” and it “requires a little more work than frankly we’re prepared to do on this bill,” Dodd, D-Conn., told reporters.
Senate Democratic Whip Dick Durbin of Illinois wants legislation that would ensure merchants could offer discounts to customers who pay by cash, check or debit.
When businesses accept major credit cards — a convenience most customers demand — they sign agreements with the card companies to pay a percentage of each transaction, usually about 2 to 3 percent. Existing law says merchants can provide a discount to customers offering cash, but business owners say the rules included in the agreements are so convoluted that it’s nearly impossible to do so.
Durbin’s proposal, co-sponsored by Sen. Christopher Bond of Missouri, would expand the law to make debit cards eligible for discounts as well. The bill also says card companies can’t insist on agreements that would make such discounts difficult.
“They harass you into not doing it,” said Lyle Beckwith of the National Association of Convenience Stores, of offering a discount to customers for paying with cash.
Banks that issue credit cards counter that Durbin’s proposal would unfairly punish credit card users and encourage merchants to advertise cash-only prices.
Scott Talbott at The Financial Services Roundtable said the concern is creating a system where “there’s no restrictions, no rules” and that “could lead to deceptive practices.”
Dodd has proudly described his credit card reform bill as one that protects the consumer because it would prohibit arbitrary rate hikes and make it difficult for individuals under the age of 21 to acquire a card.
The banking lobby is resisting this bill as well, warning that it would restrict credit at a time when Americans need it most.
A primary provision in the bill addresses the concept of “universal default,” where credit card companies increase a person’s interest rate on past balances if the person is late paying that bill or others.
Under the Senate bill, a person must be more than 60 days behind on payments before being subject to retroactive rate hikes. Even then, the credit card company would be required to restore the previous, lower rate after six months if the consumer pays the minimum balance on time.
If a lender believes the person poses a lending risk, it could still increase the interest rate on future buys. But the lender would have to provide the customer an explanation and 45 days’ notice. The lender also must review the account terms again in six months and lower the rate if appropriate.
Business owners say sidestepping a debate on the so-called “interchange fees” levied by credit card companies is a key piece of that debate because the high cost of those fees are passed on to customers.
Dodd dismissed criticism that he was bending to the banks.
“We’re not kings,” he said. Had he tried to insist on the amendment, it would have sunk the bill, Dodd said.