Thursday, November 19, 2009

Lower Interchange Would Harm Consumers - GAO



By Peter Eichenbaum - Bloomberg



Nov. 19 (Bloomberg) -- U.S. consumers may not save money and could wind up paying higher credit-card costs if lawmakers force payment networks including Visa Inc. and MasterCard Inc. to cut fees charged to merchants, a government watchdog said.



“Identifying such savings would be difficult,” the Government Accountability Office said in a report today. “Consumers also might face higher card-use costs if issuers raised other fees or interest rates to compensate for lost interchange fee income.”



The report may derail efforts to cut “swipe fees” paid by merchants on each transaction. Wal-Mart Stores Inc. and Target Corp. are among retailers asking Congress to reduce the fees. Bankers have said the current system helps merchants by guaranteeing payment and simplifying record-keeping. Changing the rules may crimp profit at lenders including Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co.



“From our perspective, it shows that consumers could be harmed,” Trish Wexler, a spokeswoman for the Electronic Payments Coalition, a Washington-based industry group that opposes interchange regulation, said of the report.

Banks use interchange revenue to pay for rewards programs and cover costs from cardholders who default. It’s also a source of revenue; interchange fees totaled $48 billion last year, according to the National Retail Federation, and accounted for 19 percent of revenue for card-issuing banks on the Visa and MasterCard networks, according to trade magazine Cards and Payments.

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