06/23/2010 02:36 pm ET Updated May 25, 2011

Merchants Worried Swipe Fee Deal In Jeopardy

The battle over swipe fees is not over yet -- despite a deal that had been reached. Lobbyists for merchants battling Wall Street over the fees charged to use credit card machines are worried that a rearguard action is being mounted by Reps. Dennis Moore (D-Kan.) and Gary Peters (D-Mich.). Moore is a leading member of the New Democrat coalition, a group of generally Wall Street-friendly Democrats.

"I've been talking to Gary Peters and Dennis Moore about reinforcing the discrimination piece," Rep. Barney Frank (D-Mass.) told HuffPost Wednesday afternoon. "There may be some further language reinforcing the provision that you can't have discrimination against the smaller banks. That is from the credit unions. One of the major concerns they have is that even though the bill says they can't be discriminated against, that they will be, and we want to toughen up the language that protects the smaller institutions."

The strength of the legislation will depend on the details of the changes being made. The credit unions, say representatives of the merchants, are trying to change the definition of "cost" in the bill in order to increase the fees that can be charged. If the commission setting the rates can consider broad costs, rather than costs directly associating with the cost of running the credit card network, then the allowable fees that banks can charge may be higher.

While Moore and Peters are working on behalf of credit unions, merchant lobbyists say that the credit unions are working on behalf of Visa, which is currently circulating proposed changes to the legislation, which were obtained by HuffPost:



Option 1 - Strike "incremental" at page 31, line 2

Section 920(a)(4)(B)(i): The current cost language is too narrow. The language limits the consideration of costs to "incremental" costs for particular transactions. Although the statute provides for consideration of costs for fraud, it excludes all other costs necessary to provide a debit transaction. Striking the words "incremental" would allow the Board to more broadly assess the costs related to debit transactions and provide more discretion to set standards that more appropriately price debit interchange.

Option 2 - Insert at page 31, line 13, "(C) Such other considerations as the Board deems appropriate" and renumber current section 920(a)(4)(C) as 920(a)(4)(D):

Section 920(a)(4): The current considerations language for the Board is very limited and narrowly prescribes the Board's discretion in considering cost considerations to only "incremental" costs and those related to fraud. Adding this section will provide the Board with discretion to account for other considerations they deem necessary in setting valid standards for assessing interchange fees.


Strike at both pages 40, line 7 and page 41 line 1, "an issuer or" and replace with "a"

Section 920(b)(1): The new sections relating to Exclusivity and Routing creates significant new issues, in three ways.

First, the new language now makes the intended small issuer exemption impractical for any network to implement. The legislation would require that issuers participate in multiple/all networks and that merchants are free to choose the lowest cost network. As such, any network that implements a higher interchange rate for small issuers would see all volume at those small issuers routed to another network by the merchant. Thus, networks are incented to provide the lowest interchange rate to small issuers to gain the merchant preference in routing.

Second, the effect of these words would also restrict networks from competing for issuer business based on superior feature functionality - including processing service and quality, risk management and fraud controls, and consumer protections (e.g., zero liability). This is because issuers are unable to choose between networks. This would stifle innovation in networks to develop new services to compete for consumers, issuers and merchants, instead driving networks to be the lowest cost provider. Issuers should be free to use competition between networks to get the best possible terms and should not be required to offer all networks.

By limiting these sections to payment networks only, the legislation will still prevent the networks from having other rules or practices that require exclusivity, but free the issuers to provide the best services for the best price.