Conyers Calls for a Reduction in Credit Card Fees;

House Judiciary Committee Chairman John Conyers, Jr. (D-Mich.) issued the following statement regarding today’s Judiciary Committee hearing on H.R. 2695, the Credit Card Fair Fee Act.

"The purpose of today’s hearing is to examine H.R. 2695, the “Credit Card Fair Fee Act of 2009.”

"Cash transactions are becoming a thing of the past. America has more than 300 million people, and almost 600 million credit cards in circulation, or two cards for every man, woman, and child in this country.

"Credit cards certainly are a convenience – a person can walk around without a dollar in their pocket so long as they have a credit card. But they come with a cost, for both merchants and consumers.

"Today’s hearing will explore one of these costs, interchange fees, and whether and how we can ensure that they are set and applied fairly.

"I hope our witnesses will address several central questions in this debate:

"First, what is the impact of credit card interchange fees on merchants?

"Every time a person uses a credit card, their bank charges the retailer’s bank an interchange fee. On top of that, the merchant pays an additional fee to its own bank.

"It may look like just a little bit here and a little bit there, but it adds up to almost $50 billion a year.

"Now, a portion of this fee covers the actual cost of the transaction plus a reasonable return on investment. Another part of it goes to credit card rewards programs. And the rest of it flows to the bottom line of the bank.

"For small transactions, such as gas purchases where the merchant is only making pennies in profit, the cost of accepting a credit card may wipe out the merchant’s profit.

"As one merchant group observed, in some cases store owners would just be better off giving away items rather than accepting credit cards as payment.

"These charges have become the second-highest expense for merchants, below only the costs of paying their employees, with annual increases exceeding health care and energy costs.

"Second, what is the impact of credit card interchange fees on consumers?

"This is the most important question – to what extent do the costs of interchange fees come out of consumers’ pockets, especially low income individuals who cannot take advantage of credit card reward programs.

"A study recently released by the Hispanic Institute found that the credit card interchange fee structure transfers billions of dollars from lower-income, minority consumers to higher-income, non-minority consumers. In groceries and gasoline alone, the transfer of wealth was estimated to amount to somewhere between $1.4 billion and $1.9 billion.

"Since the interchange fees apply to all transactions, we have learned that credit card companies make somewhere around $250 million a year just off credit card donations to charities.

"As a result, in the wake of the devastating earthquake in Haiti, the nation’s largest payment networks — Visa, MasterCard, American Express and Discover — were earning up to 3 percent in transaction fees for charitable donations.

"Only after sustained public complaints did these payment networks announce that they would waive fees for some contributions to Haitian relief.

"Third, is whether and how we can address any inequities in the interchange system.

"The legislation before us today attempts to level the playing field between merchants and banks. It allows retailers to collectively sit down and try to negotiate fair interchange rates.

"Does this interfere with the free market as critics assert? I believe it strengthens the free market by allowing even the smallest of merchants to have a chance to bargain with the largest banks at the same negotiating table.

"Will this legislation ensure that the savings are passed on to consumers? If retail markets are competitive, I believe they will.

"There is little evidence that small retailers in the county have the necessary market power to retain all the savings for themselves. However, there is evidence that lack of competition in the credit card market, as illustrated by recent legal decisions involving VISA and MasterCard.

"As Congress debates Wall Street reform this week, I believe H.R. 2695 should clearly be part of the discussion."