States Oppose Limits on Credit Card Fees
In an unlikely development state governments have joined the banking industry in battling proposed limits on Visa’s and MasterCard’s interchange fees. Also called swipe fees, interchange are the fees charged by issuers to retailers every time a credit or debit card is used for payment. Visa and MasterCard each use dozens of different interchange rates, based mostly on the type of payment card and the way the payment is processed (in-person, over the phone, over the internet, etc.).
The amendment at issue would allow retailers to give customers discounts for paying with cash and to set price thresholds for accepting cards. It would also charge the Federal Reserve with setting swipe fee limits for debit cards that are “reasonable and proportional.” Sponsored by Sen. Richard J. Durbin (D-Ill.), the amendment passed in the Senate but was not in the bill that was passed by the House in December.
Treasurers from several states are now raising concerns that such limits could hurt state programs using prepaid cards to dispense unemployment insurance and other benefits. Card issuers provide governments with the prepaid cards at little or no cost, and fund the program through the interchange fees.
“The cost savings achieved as a result of moving from check to electronic distribution of benefits are significant to states and their taxpayers,” Nebraska’s state treasurer, Shane Osborn (R), wrote to Congress last week. The “amendment will drastically alter this equation.”
Durbin, for his part, is attacking Visa and MasterCard for bullying small banks for their support for the amendment. In a letter to the two credit card associations, Durbin accused them of threatening to charge smaller issuers higher fees if the amendment remains in the final bill.
“They’re throwing everything they can at this to hang on to their pricing power,” added Rep. Peter Welch (D-Vt.), who had introduced a similar provision in the House.
I addition to Nebraska, there are 46 other states that use prepaid cards to distribute government benefits. The federal government also uses prepaid cards for some of its programs. The U.S. Treasury first began using prepaid cards for distributing Social Security payments to people without checking accounts two years ago, estimating that it could cut costs by up to $44 million annually.
(Via WashingtonPost.com)
