National Retail Federation welcomed a Federal Reserve conference on credit and debit card interchange rates scheduled to begin today, saying the conference will focus attention on a growing national economic issue.
"This conference is going to play a major role in making consumers aware of the ways banks and credit card companies are artificially driving up the cost of consumer goods in America," NRF President and CEO Tracy Mullin said. "Credit and debit card interchange fees can account for nearly $2 out of every $100 consumers spend. Card company rules force retailers to hide these fees in the price of merchandise and effectively prohibit us from giving a discount for cash or checks in all but a handful of situations. The result is that consumers end up paying extra whether they use their cards or not. That just isn't fair, so it's good to see the Federal Reserve raise this issue to national prominence."
"Increasing interchange rates are particularly troublesome at a time when the growth of consumer spending and retail sales is slowing," Mullin said. "Consumer spending has been the backbone of the U.S. economy in recent years, but these fees are reducing consumers' spending power. Consumers are already burdened enough by gasoline prices and other rising costs. They don't need to have more money taken out of their pockets just so banks can have higher profits."
The Federal Reserve Bank of Kansas City is scheduled to hold a conference on interchange rates in Santa Fe, New Mexico, today through Friday. Speakers will include Federal Reserve Vice Chairman Roger Ferguson Jr. and other Fed officials, Visa and MasterCard executives, academic experts, antitrust attorneys, the U.S. Justice Department, European and Australian bankers and others. Also among the speakers will be Lloyd Constantine, the lead counsel in NRF's lawsuit against Visa and MasterCard debit card practices that was settled in 2003 for more than $3 billion. NRF Senior Vice President and General Counsel Mallory Duncan, who chairs the recently formed Merchants Payments Coalition, will attend on behalf of NRF.
Interchange is a percentage of each transaction--sometimes accompanied by a flat fee--that banks collect from retailers every time a credit or debit card is used to pay for a purchase, adding up to billions of dollars each year.
A recent Morgan Stanley report found that the weighted average for Visa and MasterCard interchange had increased from 1.58 percent in 1998 to 1.75 percent in 2004 and is forecast to grow to 1.86 percent in 2010. With the growing use of plastic, the dollar volume of interchange collected has grown from $9.4 billion in 1998 to $17.4 billion and is projected to reach $32.4 billion in 2010. Visa and MasterCard together make up 90 percent of the U.S. credit and debit card business.
The latest rise in interchange rates came April 1, when Visa and MasterCard imposed a series of significant increases. Some of the new rates are as high as 2.9 percent, particularly for new premium cards. In addition to increasing rates, Visa and MasterCard are pushing more consumers into the higher-rate premium cards and away from lower-rate standard cards.
The National Retail Federation is the world's largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet and independent stores as well as the industry's key trading partners of retail goods and services. NRF represents an industry with more than 1.4 million U.S. retail establishments, more than 23 million employees--about one in five American workers--and 2004 sales of $4.1 trillion. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations
