Public Policy Issue Briefs

The interchange fee is a percentage of each transaction that Visa and MasterCard banks collect from restaurateurs and other merchants every time a consumer uses a credit or debit card to pay for a purchase. The fee varies with the type of card, size of merchant and other factors. Generally, the fees average close to 2 percent for credit card and debit transactions and can be even higher for rewards or corporate credit cards.

Restaurants have no control over these fees which can be raised at any time by the credit card companies, and because refusing to accept credit and debit cards in this plastic-driven society is just not a realistic option, restaurants are forced to accept whatever terms or rates they dictate – even when these are harmful to the restaurant’s viability and its guests. In most instances interchange “swipe” fees represent one of the highest expenses a business faces – second only to labor and rent. And yet, these swipe fees are one of the only costs of doing business restaurateurs cannot negotiate.

The restaurant industry operates on average profit margins of 3-5 percent so these constantly rising fees place a large burden on restaurants and are extremely harmful to all retailers, and in turn, their customers. Swipe fees have tripled from $16 billion in 2001 to $48 billion in 2008 - making it nearly impossible for restaurateurs to absorb the cost of accepting plastic as the number of electronic payment transactions continues to rise.

Legislation

The National Restaurant Association believes that it is critical that we find a way to slow the out-of-control interchange fee increases that place undue financial burdens on American restaurants and their customers. Three bills have been introduced in the 111th Congress to address the lack of transparency and fairness of swipe fee rates and rules.

H.R. 2695, the Credit Card Fair Fee Act of 2009 was introduced in the House on June 4, 2009 by Judiciary Committee Chairman John Conyers (D-MI), and Congressman Bill Shuster (R-PA). H.R. 2695 allows restaurants and other retailers to join together to negotiate interchange fees with the credit card companies and their banks. The U.S. Attorney General would have oversight of the negotiations to ensure both parties act in good faith.

The companion bill S. 1212, the Credit Card Fair Fee Act of 2009, was introduced in the Senate on June 9, 2009 by Senator Richard Durbin (D-IL). The prime variation in the two bills is that if negotiations are not successful, S. 1212 sends the issue to judges appointed by federal antitrust enforcers at the Federal Trade Commission and the Department of Justice. Based upon evidence and witnesses presented by both sides, the three-judge panel would choose the set of rates and terms offered by one of the two sides that the panel determines best approximates the rates and terms that would prevail in a functioning, competitive market.

H.R. 2382, the Credit Card Interchange Fees Act of 2009 was introduced by Congressmen Peter Welch (D-VT) and Bill Shuster (R-PA) on May 21, 2009. The legislation requires greater transparency with interchange and other fees, and rates that the credit card companies and their banks charge. In addition the bill prohibits unfair and abusive practices. Specifically the bill does the following:

• Eliminate higher interchange fees collected on rewards cards;
• Allow merchants the option to discount for cash purchases without fear of credit card company penalties;
• Prohibit the Honor-All-Cards rule;
• Allow merchants to encourage customers to pay with alternate forms of payment;
• Allow merchants to accept cards for portions of their business (i.e. online
• purchases) without forcing them to accept cards at all other retail locations;
• Prohibit Reason Code 96 chargebacks;
• Allow merchants to charge a minimum amount for a card purchase;
• Prevents card companies from requiring merchants to conduct any minimum number of transactions in any given time period for access to a network.
• Require full disclosure of rates and terms to the FTC, Federal Reserve, and consumers.

The National Restaurant Association is a member of Merchant Payments Coalition. More information is available on the coalition’s website www.UnfairCreditCardFees.com

Questions?

Contact David Koenig at (202) 331-5905 or dkoenig@restaurant.org.

Associated Content

Card Processing Rate Calculator