Ahead of the Bell: Credit card fee fight

Retailers and consumer groups will take a swipe at the credit card industry Thursday, as they urge members of Congress to change the way card companies set the fees merchants pay on electronic transactions.

Representatives of Visa Inc. and MasterCard Inc., will argue that the proposed legislation would essentially place price controls on their industry and hurt consumers.

At issue is the "interchange fee," which credit card companies charge every time a consumer pays for a purchase with plastic. The fee, which averages just below 2 percent, is collected by the merchant's bank as part of a larger charge for processing the transaction.

The National Association of Convenience Stores and other retailers say their fee expenses have mushroomed in recent years, cutting into profits. An executive from the trade group, Thomas Robinson, is scheduled to testify before the House Judiciary Committee.

The retailers support legislation introduced by Reps. John Conyers, D-Mich., and Chris Cannon, R-Utah, that would require card companies to negotiate the fees with merchants. If agreement couldn't be reached, a panel of judges would set the fees. Conyers chairs the antitrust panel holding the hearing.

The 16,600 banks and other financial institutions that issue Visa and MasterCard-branded cards will collect $48 billion in interchange fees this year, the National Retail Federation says, up from $16 billion in 2001.

The two companies contend that the increased fees reflect the increasingly popularity of credit and debit cards, which were used in 40 billion transactions last year.

In addition, the companies say they do negotiate fees with larger retailers. For example, Visa introduced a fee specifically for fast food companies several years ago that allowed McDonald's Corp. and Burger King Corp. to accept credit cards.

Visa and MasterCard also say the fee, which is paid to banks that issue the cards, pays for the convenience and security of credit card transactions. Banks that issue cards are on the hook for any fraudulent transactions, rather than consumers, and the banks also take the credit risk that the consumer may not pay.

Ed Mierzwinski, a director at U.S. Public Interest Research Group, will join retailers in testifying in support of the bill. John Blum, a vice president of a Virginia credit union, along with representatives from the two credit card companies, will oppose the bill. The hearing is scheduled to begin at 11 a.m. EDT.

(This version CORRECTS that banks and financial instituations are responsible for interchange-fee collection.)