Retailers assail credit card fees in House hearing

Retailers accused Visa and MasterCard during a congressional hearing Thursday of levying excessive fees, while the card company executives countered that retailer-supported legislation would simply push more of the cost onto consumers.

The exchange, which took place before a House Judiciary Committee antitrust task force, shined a light on a lesser-known aspect of the credit card industry: the so-called "interchange fee" that merchants pay to banks on all electronic transactions.

The dispute has intensified as plastic has become the preferred payment method. A majority of transactions are now done electronically, Texas Rep. Lamar Smith said, up from roughly 20 percent 10 years ago. That number will reach 70 percent in three years, he added.

The interchange fee, which Visa says averages about 1.6 percent, differs depending on the merchant and type of card. The fees are set by Visa and MasterCard but are collected by the merchant's bank as part of a larger charge for processing the transaction. The credit card companies say they don't receive revenue from the fees.

Tom Robinson, who operates 34 gas stations and convenience stores in Northern California, complained that the fees are set collectively by the credit card companies and large banks in violation of antitrust laws. They are presented to merchants as a "take it or leave it offer," he told lawmakers.

Convenience stores paid $7.6 billion in card fees last year, Robinson said, up $1 billion from 2006 and double the industry's pretax profits of $3.4 billion. Robinson testified on behalf of the National Association of Convenience Stores.

The National Retail Federation says merchants will pay banks $48 billion in credit card fees this year, up from $16 billion in 2001. That amount is largely passed on to consumers, costing U.S. families more than $400 annually, the group says.

Robinson urged lawmakers to approve legislation, the Credit Card Fair Fee Act, that would require Visa and MasterCard to negotiate the fees. If agreement couldn't be reached, a panel of judges would set the rates.

Visa and MasterCard-branded cards account for 80 percent of the credit card market.