RAA Group

A report released today by the Government Accountability Office (GAO), the watchdog arm of Congress, revealed credit card companies and their issuing banks profit significantly from interchange fees while merchants and consumers face escalating costs, noted the Retail Industry Leaders Association.

“Today’s GAO report verifies what retailers, small and large, have been saying for years.  Congress must act to reform this broken system and prevent credit card giants and their issuing banks from continuing to impose unjustifiable fees on retailers and their customers,” said John Emling, senior vice president for government affairs.

Interchange fees are imposed by credit card companies and issuing banks under the pretense of processing credit and debit card transactions.  However, these fees have tripled in the United States since 2001, to $48 billion in 2008, despite advances in technology that have reduced other comparable transactional costs.  Today, for most retailers, the cost of processing paper checks is less than the cost of accepting credit and debit cards.

According to the report released today,

“Although issuers incur costs for offering cards, concerns remain about the extent to which interchange fee levels closely relate to the level of card program expenses or whether they are set high so as to increase issuer profits. In a competitive market, the price of the product and the cost of producing it would be closely aligned. However, producers with market power—such as monopolists or those offering goods not generally offered by others—have the ability to charge high, noncompetitive prices.” (GAO Report 10-45, Credit Cards, 11/19/09, p. 21, emphasis added)

In 2008, Visa and MasterCard represented 71 percent of the credit card market and 88 percent of all interchange fees were collected by the top ten managing banks.

The report also refuted credit card industry claims that interchange fees had not increased.

“Visa and MasterCard officials told us that their average effective interchange rates applied to transactions have remained fairly constant in recent years when transactions on debit cards, which have lower interchange fee rates, are included. However, our own analysis of Visa and MasterCard interchange rate schedules shows that the interchange rates for credit cards have been increasing and their structures have become more complex, as hundreds of different interchange fee rate categories for accepting credit cards now exist.” (GAO Report 10-45, p. 14, emphasis added)

The GAO report evaluated proposed changes to interchange fees,

“A significant advantage of capping or limiting interchange fees would be that it would reduce interchange fee costs most directly. The experience in Australia indicates that this option does lower merchant costs and Australian regulators and merchant representatives insist that consumers have also benefited, arguing that merchants in competitive markets generally lower prices.”  (GAO Report 10-4, Page 48, emphasis added)

Australia and 29 other countries have taken or are considering taking action to address these fees.

“We commend the GAO for its thorough review of this important issue and look forward to working with Congress to enact meaningful interchange reform that will protect merchants and consumers from the unfair practices the credit card industry has relied upon for years,” concluded Emling.

RILA is the trade association of the world’s largest and most innovative retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and operate more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad.