House panel favors retailers in vote to cut credit card fees

The House Judiciary Committee on Wednesday voted to give retailers a rare break from antitrust laws, approving legislation to allow them to band together when bargaining over the credit card fees they pay to banks.

The 19-16 bipartisan vote handed a victory to a coalition of supermarkets, convenience stores and big box retailers that has argued that so-called interchange fees are too high.

“We are very happy with the bipartisan vote and support that we got in the Judiciary Committee today,” said Chris Tampio, the senior director for government relations at the National Association of Convenience Stores , a coalition member.

The Electronic Payments Coalition , which represents banks and credit unions that collect the interchange fees, decried the legislation as “a sweetheart deal for giant retailers.”

“We believe that there are many unintended consequences that can arise from the bill,” a lobbyist for the coalition, Peter Madigan, said. “The opt-out for smaller institutions will not work, and there are no safeguards that allow for consumers to benefit.”

Nine Republicans joined 10 Democrats on the House panel to approve the bill. Eight Democrats and an equal number of Republicans opposed it.

The vote caps months of bitter feuding between two powerful business lobbies over fees and terms for access to the electronic payments system.

Set by Visa and MasterCard, interchange fees are paid to card issuers via the merchant’s bank whenever a customer uses plastic at a store. The rates vary, but on average, amount to 1.75 percent of the purchase price, the card associations say.

Retailers argue that in practice the fees are higher — approximately 2 percent of the purchase price — once the growing use of rewards cards, which often carry higher fees, is taken into account.

They also argue that Visa and MasterCard — which have a combined 80 percent share of the credit card industry — use their market power to push up the interchange rates.

The legislation, which was sponsored by House Judiciary panel Chairman John Conyers Jr. (D-Mich.) and Rep. Chris Cannon (R-Utah), would allow retailers to negotiate as a group for better rates and terms to access the system. Banks would also be able to negotiate together. Under current law, such collaboration would be illegal.

An earlier version of the bill would have gone further by creating a three-judge panel with power to choose between each party’s best offer should they fail to agree on a rate.

But after a handful of panel Democrats expressed concerns with that approach in a letter sent Tuesday to Conyers, the chairman offered a manager’s amendment to strike the three-judge panel.

Instead, Justice Department (DoJ) oversight would increase. Justice officials would be required to gather information from the two parties, oversee the talks, and report on their progress to Congress, under the bill approved by the panel on Wednesday.

Conyers’s amendment also would allow credit unions and smaller banks to opt out of the negotiations. And it would require merchants to pass along to customers any reductions in interchange fees secured through the negotiations. Banks, in turn, would be forced to pass any fee increases onto customers or employees.

The Electronic Payments Coalition remained opposed to the bill despite the late changes.

“Nowhere in the [manager’s] amendment does it say that consumers will save so much as a penny on a gallon of gas or a gallon of milk,” the coalition said in a statement released before the markup.

Another amendment, pushed by the banks and offered by Rep. Debbie Wasserman Schultz (D-Fla.), would have required merchants to pass through 100 percent of their fee reductions. It failed.

The panel also voted down two other amendments sought by banks. Both would have limited the antitrust exemption to smaller merchants—in one case, to those with fewer than 50 employees and, in the other case, to those with fewer than 5,000.

Members of the merchant lobby praised the bill. One coalition lobbyist argued, for example, that it made good policy sense to have the Justice Department report back to Congress on the negotiations.

“This is a very good-sized antitrust exemption. Congress will need to follow its effectiveness closely,” Carl Thorsen of American Continental Group said.

Asked whether lawmakers might weigh in on the negotiations, he guessed they would if one of the parties wasn’t acting in good faith.

“That would be a problem for the members of Congress, because with the passage of this legislation they are investing themselves in fixing this broken marketplace,” he said.

DoJ and the Federal Trade Commission have raised concerns about the legislation in letters to Rep. Lamar Smith (R-Texas), the panel’s ranking member.

Keith B. Nelson, principal assistant deputy attorney general at DoJ, wrote that the department has historically opposed sector-specific antitrust exemptions and believes that they are justified only in rare cases.

He also said the legislation could harm consumers not help them.