Sweeping credit card reform legislation signed into law by President Obama last week will require a study of the $48 billion in interchange fees paid by retailers and consumers each year, but Congress was unable to reach agreement on a provision that would make it easier for merchants to offer discounts to customers who pay by cash.
H.R. 627, the Credit Cardholders Bill of Rights Act, passed the House 361-64 on Wednesday after winning Senate approval on a 90-5 vote on Tuesday. The original bill was sponsored by Representative Caroline Maloney, D-N.Y., and first passed the House three weeks ago. But the Senate added a number of provisions from legislation sponsored by Banking, Housing and Urban Affairs Committee Chairman Christopher Dodd, D-Conn., that toughened the already-extensive crackdown on credit card practices criticized by consumer groups.
Obama signed the legislation on Friday.
The final bill will require 45 days’ notice of rate increases and will end “double cycle” billing, where interest charges are computed on outstanding balances from more than one billing cycle. Parental consent will be required to issue cards to most individuals under 21, bills must be sent three weeks before they are due, and over-limit fees will be barred unless the consumer authorizes the credit card company to cover transactions that go beyond his or her credit limit and agrees to the fees.
The measure will ban interest rates from being applied retroactively to existing balances, but retailers can still offer most deferred interest “same as cash” payment plans.
The legislation also includes limits on gift card expiration dates and dormancy fees, and a provision that could hamper retailers’ ability to offer instant credit at the point of sale by requiring that a consumer’s ability to make payments under the plan be considered before a credit card can be issued.
Among the provisions added by Dodd and strongly supported by NRF was a requirement that the Government Accountability Office conduct a comprehensive study of interchange fees and their impact on both retailers and consumers. The study will cover issues such as disclosure of interchange fees to consumers, the extent to which the fees drive up prices for consumers, the card industry’s refusal to negotiate over the fees, how much of the fees go to support marketing programs such as airline miles and other rewards, and ways in which card company contracts block merchants from giving discounts to customers who pay by cash, among other issues. The GAO will have six months to conduct the study and report back to Congress on its findings.
“Interchange fees are a tremendously important issue,” Dodd said during Senate debate. “We have put in … a thorough study of the interchange issue. … This is a very onerous area and we need to address it.”
Dodd refused, however, to agree to an amendment on cash discounts proposed by Senate Majority Whip Richard Durbin, D-Ill., and Senator Christopher “Kit’ Bond, R-Mo., saying there wasn’t time to consider the dozens of amendments being offered by various senators and still pass the bill by Memorial Day as requested by Obama.
Current federal law allows merchants to offer a discount to customers who pay by cash or check, but credit card company contracts make it difficult to do so in practice. The Durbin-Bond amendment would have added debit cards to the list of payments for which a discount could be offered, and would have prohibited credit card companies from penalizing merchants for offering a discount, dictating the way in which discounts are displayed or blocking merchants from directing customers toward a discount payment option.
Durbin said he still plans to fight for discounts as part of future legislation, saying “there’s more to do” on credit card reform.
“You ought to be able to get a discount when you pay in cash, with a check or debit card and don’t use your credit card,” Durbin said during an interview on MSNBC. “We shouldn’t view this credit card reform as the last stop. We’ve still got to be there to fight for American’s consumers who are struggling in this recession.”
Interchange is a fee averaging close to 2 percent that Visa and MasterCard banks charge merchants to process the transaction each time a credit card is used to pay for a purchase. Visa and MasterCard rules effectively require the fees to be built into the price of merchandise, driving up costs for all consumers regardless of whether they pay by cash, check or plastic. The fees totaled $48 billion in 2008 and cost the average household $427, according to NRF estimates.
The article above is reprinted from the current issue of Washington Retail Insight, NRF’s weekly e-newsletter covering public policy issues affecting the retail industry. NRF members, read the rest of the newsletter.