Congress Targets Credit Card ‘Swipe’ Fees

Congress Targets Credit Card ‘Swipe’ Fees
August 1, 2009

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)

U.S. Sens. Dick Durbin (D-IL) and Kit Bond (R-MO) have proposed congressional intervention into a long-running battle between the issuers of credit cards and the retailers who accept them for payment.

The Credit Cardholders’ Bill of Rights Act (HR 627) would regulate the interchange fees, often called “swipe fees,” that credit card issuers charge retailers every time consumers make a purchase in a store using a credit card. The measure was first introduced as an amendment to the proposed Credit Cardholders’ Bill of Rights, then offered as stand-alone legislation.

Ongoing Battle

Retailers have complained for years that credit card issuers raise interchange fees dramatically and unfairly. Card issuers say the fees are legitimate business-to-business charges for processing transactions, fraud protection, and other expenses related to the credit card business.

“The credit and debit card systems were built and paid for by the [card-issuing] networks. Retailers did not pay a penny to help develop these systems that operate 24/7, 365 days a year,” said James Clark of the American Bankers Association.

“No retailer is required to participate,” Clark continued. “For example, Costco does not accept any credit card except AMEX. Costco accepts PIN debit cards, checks, and cash. The decision not to accept MasterCard or VISA does not appear to have hurt the growth or profits of Costco. Numerous other retailers only accept cash, check, or PIN debit.”

The Merchants Payments Coalition, a group of retailers and other businesses opposed to swipe fees, issued a press statement saying the fees are unreasonable. “[T]he banks have been aggressively raising swipe fees for years, just like late fees, even as the cost of processing credit cards has dropped dramatically,” said the MPC statement. “These fees have tripled since 2001, from $16 billion to $48 billion.”

Need to ‘Pay Their Share’

“[Retailers] don’t want to pay their share of the system, and they want their customers to pay,” said Trish Wexler, a spokeswoman for the Electronic Payments Coalition, which represents credit card issuers, in an interview with Politico.

Clark argues the decision of whether to use a credit card network ultimately lies with the retailer.

“The point is, the retailer makes the choice,” Clark said. “They know the costs going in. The decision is theirs. While many state laws prohibit retailers from surcharging a consumer for using ‘plastic,’ to my knowledge there is no prohibition against retailers offering a discount for cash, and many do. If plastic costs too much, the retailer can offer a cash discount to change buyer behavior.”


Matthew Glans (mglans@heartland.org) is legislative specialist in insurance and finance issues for The Heartland Institute.

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)