Released: July 21, 2006

Consumer groups ask Senate to investigate impact of credit card interchange fees on consumers

Contact: Linda Sherry, Consumer Action, 202-544-3088 / Ed Mierzwinski, USPIRG, 202-546-9707 / Travis Plunkett, Consumer Federation, 202-387-6121

Washington DC – Three national consumer organizations today called on the Senate Judiciary Committee to investigate the negative impact of credit card interchange fees on consumers. In a letter to Judiciary Committee Chairman Arlen Specter and Ranking Member Patrick Leahy, the U.S Public Interest Research Group, Consumer Federation of America and Consumer Action expressed concern that these fees, which are charged by banks to merchants for credit card transactions, are passed on to all consumers in the form of higher product prices.

Merchants typically pay interchange fees of about 1.6 percent or more of the amount of each credit card transaction. In 2004, credit card interchange fees alone cost merchants and consumers an estimated $27.6 billion. In order to increase profits from these fees, credit card associations have used misleading and anticompetitive practices that are costly to both consumers and merchants.

Interchange fees are hidden charges that are ultimately passed on to all Americans in the prices they pay, regardless of whether they use credit, debit, checks, or cash. These charges impose the greatest hardship on the most vulnerable consumers – the millions of American consumers without credit cards or banking relationships.

As the Senate Judiciary Committee prepares to begin investigations into these interchange fees, the consumer groups called on the Committee to scrutinize four primary concerns:

• All consumers, even those who pay with cash and checks, pay more at the store because these interchange fees are passed on in the overall cost of goods sold.
• Significant increases in interchange fees signal a broken market. Visa and MasterCard have tremendous market power, which allows them to dictate the terms of trade: merchants have no choice but to accept Visa and MasterCard products on the sellers’ terms.
• There is a lack of information for consumers because the associations’ rules limit the ability of merchants to direct consumers to the safest, lowest cost, and most efficient forms of payment. In addition, both the associations and banks engage in a variety of misleading practices to drive consumers to higher-cost forms of payment.
• Interchange and consumer fee increases have occurred as banks have merged and industry concentration has increased to alarming levels.

The statement concludes: “The billions of dollars that credit card companies make each year through interchange fees ultimately come from the pockets of consumers – including the millions of Americans without credit cards. The credit card market lacks the critical foundations of healthy competition – choice and adequate information.”

The letter was comments were submitted in connection with Hearings being held by the Senate Judiciary Committee on "Credit Card Interchange Fees: Antitrust Concerns?" on July 19, 2006.