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California officials examine credit card interchange fees

By Anastasia Zoldak

California officials are examining the legality of credit card processing fees that banks charge. Assembly Member Pedro Nava (D-Santa Barbara), chair of the Assembly Banking & Finance Committee, has helped launch California's inquiry into how banks charge merchants fees to process credit and debit cards. These merchant charges are commonly called interchange fees. The credit card companies say they use these fees to support the administrative operations of their business.

At issue is the fact that these credit card processing fees have increased disproportionately to other bank fees. Supporting this claim is a report from the Federal Reserve Bank, which estimates that the value of interchange fees paid on Visa and MasterCard credit and debit cards alone has increased from about $20 billion in 2002 to $45 billion in 2007.

In a 2009 report to Congress, the U.S. Government Accounting Office's investigation into the matter indicates retailers generally increased their prices to pay for increased interchange merchant fees. This is the main reason California officials and Congress are reviewing these fee hikes. According to the National Retail Federation, the average American spent $427 in 2008 on interchange fees alone.

The Hispanic Institute released a study in 2009 that brought this issue to Nava's attention. It confirmed that interchange fees are often passed on to consumers through higher prices. "California consumers and businesses are being taken to the cleaners to the tune of $5 billion," quoted Nava as saying.

There may be some relief for merchants soon because interchange fees are also being reviewed by Congress. In the House, Rep. Peter Welch (D-Vermont) introduced H.R. 2382, the Credit Card Interchange Fees Act of 2009, which has been referred to committee. Among other things, the bill would allow merchants to impose fees for consumers who use credit cards to defray the cost of the interchange fees.

In the Senate, Sen. Richard Durbin (D-Ill.) and Sen. Christopher Bond (R-Mo.) have introduced an amendment to HR 627, the Credit Cardholders' Bill of Rights Act of 2009, which would impose greater transparency on the whole interchange fee system, according to the report.

Article by Anastasia Zoldak 

Published: February 12, 2010

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