Report finds credit card fees burden merchants, but changes could hurt consumers

The pitched lobbying battle between the financial industry and retailers over credit card fees will ratchet up following a mixed government report on the issue.

The Government Accountability Office (GAO) on Thursday released a highly anticipated report on so-called “interchange fees,” concluding that the fees have imposed heavy costs on merchants.

But GAO said that legislative and regulatory options to reduce the fees “pose challenges” and the impact on consumers may be “mixed.”

The GAO reported that cracking down on interchange fees could help merchants but may have a split impact on consumers. Sen. Dick DurbinRichard (Dick) Joseph DurbinThis week: GOP mulls vote on ‘abolish ICE’ legislation Dems launch pressure campaign over migrant families Kavanaugh paper chase heats up MORE (D-Ill.) and Rep. Peter WelchPeter Francis WelchDems struggle with unity amid leadership tensions New Dem star to rattle DC establishment Overnight Defense: Defense spending bill amendments target hot-button issues | Space Force already facing hurdles | Senators voice 'deep' concerns at using military lawyers on immigration cases MORE (D-Vt.), among others, have championed legislation reining in the fees.

Merchants would see lower fees, consumers might face higher card costs and it is unclear if consumers would see benefits, the report said of possible new rules. “Identifying such savings would be difficult,” GAO said.

The interchange fee issue is one of the toughest lobbying battles in the financial world and pits banks, card companies and other card issuers against small and large merchants. The two sides even have dueling coalitions: The Electronic Payments Coalition and the Merchant Payments Coalition.

The credit card industry is highly concentrated, with the top 10 issuers accounting for 88 percent of the total credit card market by balances outstanding, GAO reported.

Credit unions and small banks also rely heavily on interchange fees as a source of revenue, GAO said.

GAO concluded that interchange rates and their complexity have increased significantly in recent years. Stiff competition among card companies for new issuers such as banks may also lead to higher rates, the report said, because issuers reap significant revenue from the fees.

Both sides of the issue immediately seized on various aspects of the report as underscoring their claims.

“The GAO study confirms what we have long understood: Merchants get significant benefits when they accept credit and debit cards for purchases, and it is consumers that will ultimately be harmed if Congress steps in to lower what merchants pay to accept debit and credit cards,” said Kenneth Clayton, senior vice president at the American Bankers Association (ABA).

Financial institutions emphasized on Thursday that they see the fight as a split between financial and retail companies and not immediately with consumers.

But Mallory Duncan, senior vice president at the National Retail Federation, said the report underscored the cost to consumers.

“This report confirms what we have been saying about swipe fees for years — that they drive up costs for consumers and are a cash cow for banks,” Duncan said.

Welch said that the report demonstrates the need for congressional action. The House Financial Services Committee held a recent hearing on the issue, but Chairman Barney Frank (D-Mass.) has yet to announce his position on the issue.

“This report confirms what every small-business owner in the country already knows: Credit card fees are killing small businesses,” Welch said in a statement. “Ever-increasing swipe fees are driving up costs for merchants, who then pass those costs to consumers. This study shows that curtailing the credit card industry’s most egregious practices could lower prices for all consumers.”