Divided House Judiciary Passes Interchange Bill

Ed Kountz | July 17, 2008, 11:14 AM

If politics make strange bedfellows, the latest flare-up regarding card interchange fees is leading to an all-out bedroom free-for-all.

The House Judiciary Committee yesterday advanced, by a 19 to 16 vote, interchange fee legislation that would carve out an exemption to antitrust laws, enabling merchants to band together and engage in collective bargaining with the card networks and issuing community to push for lower processing costs.

It was a contentious day in Washington … The American Banker report on the vote concentrated on what it called an “unusually chaotic” vote, taking place amidst confusion after four hours of intense debate, with supporters and opponents not lining up neatly along party lines, and asserting that they did not have enough time to study late-breaking changes.

The Merchant Payments Coalition (MPC), an alliance of nearly 100 supermarkets, drug stores, c-stores, online merchants and others, called the passage "a landmark decision" and a step towards reining in Visa and MasterCard’s "stranglehold." The National Retail Federation called it “a sensible solution to an escalating problem.”

However, MasterCard noted in a statement released after the vote that the divided vote reflected “the deeply flawed nature of this bill,” which merchants hope will reduce their costs for accepting credit card transactions. Also expressing opposition to the bill is a wide-cast coalition including retailer Nordstrom, the Dept. of Justice and Federal Trade Commission, the Black Chamber of Commerce, and the Southern Christian Leadership Conference, who in a letter to Georgia Congressman Hank Johnson said that the bill would “raise interest rates for credit card holders, harm local businesses and threaten community-based banks,” particularly in low- and middle-income communities, by giving greater collective bargaining power to large merchants.

An amendment that would have required merchants to pass through to consumers 100% of the benefit of any negotiated savings on interchange fees was defeated. As passed, those savings would go to consumers, or to employees of merchants or financial institutions, a somewhat-broader wording that was one of the day’s sticking points. A three-judge electronic payments arbitration panel, which the Department of Justice had come out against as likely to “harm competition,” was eliminated from the bill.

As blogged on previously, it's unlikely that the bill will pass the Senate before the end of the current session. Said Dan Mica, President/ CEO of the Credit Union National Association (CUNA), "With such little time left for congressional action, and with other key measures waiting their turn, the bipartisan opposition – split 50-50 – to the bill makes it difficult to imagine such controversial legislation can precede much, if at all, further in the House for this Congress."

That said, battle has been joined. Expect the issue to make a return once the next Congress is seated.