Thursday, November 19, 2009
GAO Study on Interchange Fees Inconclusive By Sara Jerome
Advocacy efforts over the prospect of credit card interchange regulation have led to a gridlocked debate between retailers and credit card companies. Interchange fees are the cost stores pay to banks when customers use credit cards.
A GAO study released Thursday, which sought to cut through the fray, was pretty much a wash. Stakeholders on both sides immediately adopted certain aspects of the report into their lobbying efforts, ignoring points that weren’t so favorable.
Points supporting retailers:
– Total costs of accepting credit cards for merchants have risen over time as consumers use cards more.
– Part of these increased costs …may be the result of how Visa and MasterCard competed to attract and retain bank issuers to offer cards by increasing the number of interchange fee categories and the level of these rates.
– Consumers who do not use credit cards may be paying higher prices for goods and services, as merchants pass on their increasing card-acceptance costs to all of their customers.
– Proposals for reducing interchange fees…would benefit [merchants]. Consumers would also benefit if merchants reduced prices for goods and services, but identifying such savings would be difficult.
Points supporting credit card companies:
– Concerns remain over whether the level of [interchange] rates reflects market power–the ability of some card networks to raise prices without suffering competitive effects–or whether these fees reflect the costs that issuers incur to maintain credit card programs
– Some consumers have benefited from competition in the credit card market, as cards often have no annual fees, lower interest rates than they did years ago, and greater rewards.
– [If interchange is regulated, consumers] might face higher card use costs if issuers raised other fees or interest rates to compensate for lost interchange fee income.
– [Regulation options present] challenges for implementation, such as determining at [what rates to set].
See GAO report in attachment below.
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