[House Report 110-913]
[From the U.S. Government Publishing Office]
110th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 110-913
======================================================================
CREDIT CARD FAIR FEE ACT OF 2008
_______
October 3, 2008.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Conyers, from the Committee on the Judiciary, submitted the
following
R E P O R T
together with
ADDITIONAL VIEWS AND DISSENTING VIEWS
[To accompany H.R. 5546]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the bill
(H.R. 5546) to amend the antitrust laws to ensure competitive
market-based rates and terms for merchants' access to
electronic payment systems, having considered the same, reports
favorably thereon with an amendment and recommends that the
bill as amended do pass.
CONTENTS
Page
The Amendment.................................................... 2
Purpose and Summary.............................................. 4
Background and Need for the Legislation.......................... 5
Hearings......................................................... 10
Committee Consideration.......................................... 11
Committee Votes.................................................. 11
Committee Oversight Findings..................................... 13
New Budget Authority and Tax Expenditures........................ 13
Congressional Budget Office Cost Estimate........................ 13
Performance Goals and Objectives................................. 16
Constitutional Authority Statement............................... 16
Advisory on Earmarks............................................. 16
Section-by-Section Analysis...................................... 16
Additional Views................................................. 19
Dissenting Views................................................. 27
The Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Credit Card Fair Fee Act of 2008''.
SEC. 2. LIMITED ANTITRUST IMMUNITY FOR THE NEGOTIATION AND
DETERMINATION OF RATES AND TERMS FOR ACCESS TO
COVERED ELECTRONIC PAYMENT SYSTEMS.
(a) Definitions.--For purposes of this Act:
(1) ``Access agreement'' means an agreement giving a merchant
permission to access a covered electronic payment system to
accept credit cards and/or debit cards from consumers for
payment for goods and services as well as to receive payment
for such goods and services, conditioned solely upon the
merchant complying with the rates and terms specified in the
agreement.
(2) ``Acquirer'' means a financial institution that provides
services allowing merchants to access an electronic payment
system to accept credit cards and/or debit cards for payment,
but does not include independent third party processors that
may act as the acquirer's agent in processing general-purpose
credit or debit card transactions.
(3) ``Antitrust Division'' means the Antitrust Division of
the U.S. Department of Justice.
(4) ``Antitrust laws'' has the meaning given it in subsection
(a) of the first section of the Clayton Act (15 U.S.C. 12(a)),
except that such term includes section 5 of the Federal Trade
Commission Act (15 U.S.C. 45) to the extent such section 5
applies to unfair methods of competition as well as any similar
State law.
(5) ``Credit card'' means any general-purpose card or other
device issued or approved for use by a financial institution
allowing the cardholder to obtain goods or services on credit
on terms specified by that financial institution.
(6) ``Covered electronic payment system'' means an electronic
payment system that has been used for at least 20 percent of
the combined dollar value of U.S. credit card, signature-based
debit card, and PIN-based debit card payments processed in the
applicable calendar year immediately preceding the year in
which the conduct in question occurs.
(7) ``Debit card'' means any general-purpose card or other
device issued or approved for use by a financial institution
for use in debiting a cardholder's account for the purpose of
that cardholder obtaining goods or services, whether
authorization is signature-based or PIN-based.
(8) ``Electronic payment system'' means the proprietary
services and infrastructure that route information and data to
facilitate transaction authorization, clearance, and settlement
that merchants must access in order to accept a specific brand
of general-purpose credit cards and/or debit cards as payment
for goods and services.
(9) ``Financial institution'' has the same meaning as in
section 603(t) of the Fair Credit Reporting Act.
(10) ``Issuer'' means a financial institution that issues
credit cards and/or debit cards or approves the use of other
devices for use in an electronic payment system, but does not
include independent third party processors that may act as the
issuer's agent in processing general-purpose credit card or
debit card transactions.
(11) ``Market power'' means the ability profitably to raise
prices above those that would be charged in a perfectly
competitive market.
(12) ``Merchant'' means any person who accepts credit cards
and/or debit cards in payment for goods or services that they
provide.
(13) ``Negotiating party'' means 1 or more providers of a
covered electronic payment system or 1 or more merchants who
have access to or who are seeking access to that covered
electronic payment system, as the case may be, and who are in
the process of negotiating or who have executed a voluntarily
negotiated access agreement that is still in effect.
(14) ``Person'' has the meaning given it in subsection (a) of
the first section of the Clayton Act (15 U.S.C. 12(a)).
(15) ``Provider'' means any person who owns, operates,
controls, serves as an issuer for, or serves as an acquirer for
a covered electronic payment system.
(16) ``State'' has the meaning given it in section 4G(2) of
the Clayton Act (15 U.S.C. 15g(2)).
(17) ``Terms'' means all rules applicable either to providers
of a single covered electronic payment system or to merchants,
and that are required in order to provide or access that
covered electronic payment system for processing credit card
and/or debit card transactions.
(18) ``Voluntarily negotiated access agreement'' means an
executed agreement voluntarily negotiated between 1 or more
providers of a single covered electronic payment system and 1
or more merchants that sets the rates and terms pursuant to
which the 1 or more merchants can access that covered
electronic payment system to accept credit cards and/or debit
cards from consumers for payment of goods and services, and
receive payment for such goods and services.
(b) Limited Antitrust Immunity for Negotiation of Access Rates and
Terms to Covered Electronic Payment Systems.--(1) Except as provided in
paragraph (2) and notwithstanding any provision of the antitrust laws,
in negotiating access rates and terms any providers of a single covered
electronic payment system and any merchants may jointly negotiate and
agree upon the rates and terms for access to the covered electronic
payment system, including through the use of common agents that
represent either providers of a single covered electronic payment
system or merchants on a non-exclusive basis. Any providers of a single
covered electronic payment system also may jointly determine the
proportionate division among themselves of paid access fees.
(2) Notwithstanding any other provision of this Act, the immunity
otherwise applicable under paragraph (1) shall not apply to a provider
of a single covered electronic payment system, or to a merchant, during
any period in which such provider, or such merchant, is engaged in any
unlawful boycott.
(c) Nondiscrimination.--For any given covered electronic payment
system, the rates and terms of a voluntarily negotiated access
agreement reached under the authority of this section shall be the same
for all merchants, regardless of merchant category or volume of
transactions (either in number or dollar value) generated. For any
given covered electronic payment system, the rates and terms of a
voluntarily negotiated access agreement reached under the authority of
this section shall be the same for all participating providers,
regardless of provider category or volume of transactions (either in
number or dollar value) generated.
(d) Facilitation of Negotiation.--
(1) Schedule.--Within one month following enactment of this
Act, the negotiating parties shall file with the Antitrust
Division a schedule for negotiations. If the negotiating
parties do not file such a schedule within one month from the
date of enactment, the Antitrust Division shall issue such a
schedule and inform the negotiating parties of the schedule. In
either case, the Antitrust Division shall make the schedule
available to all negotiating parties.
(2) Initial disclosure.--Within one month following enactment
of this Act, the persons described in this subsection shall
make the initial disclosures described in paragraphs (3), (4),
and (5) to facilitate negotiations under the limited antitrust
immunity provided for by this section.
(3) Issuers, acquirers, and owners.--Any person who is 1 of
the 10 largest issuers for a covered electronic payment system
in terms of number of cards issued, any person who is 1 of the
10 largest acquirers for a covered electronic payment system in
terms of number of merchants served, and any person who
operates or controls a covered electronic payment system shall
produce to the Antitrust Division and to all negotiating
parties--
(A) an itemized list of the costs necessary to
provide the covered electronic payment system that were
incurred by the person during the most recent full
calendar year before the initiation of the negotiation;
and
(B) any access agreement between that person and 1 or
more merchants with regard to that covered electronic
payment system.
(4) Merchants.--Any person who is 1 of the 10 largest
merchants using the covered electronic payment system,
determined based on dollar amount of transactions made with the
covered electronic payment system, shall produce to the
Antitrust Division and to all negotiating parties--
(A) an itemized list of the costs necessary to access
an electronic payment system during the most recent
full calendar year prior to the initiation of the
proceeding; and
(B) any access agreement between that person and 1 or
more providers with regard to that covered electronic
payment system.
(5) Disagreement.--Any disagreement regarding whether a
person is required to make an initial disclosure under this
clause, or the contents of such a disclosure, shall be resolved
by the Antitrust Division.
(6) Attendance of antitrust division.--A representative of
the Antitrust Division shall attend all negotiation sessions
conducted under the authority of this section.
(e) Transparency of Voluntarily Negotiated Access Agreements.--
(1) Voluntarily negotiated access agreements between
negotiating parties.--A voluntarily negotiated access agreement
may be executed at any time between 1 or more providers of a
covered electronic payment system and 1 or more merchants.
(2) Filing agreements with the antitrust division.--The
negotiating parties shall jointly file with the Antitrust
Division a clear intelligible copy of--
(A) any voluntarily negotiated access agreement that
affects any market in the United States or elsewhere;
(B) the various components of the interchange fee;
(C) a description of how access fees that merchants
pay are allocated among financial institutions and how
they are spent;
(D) whether a variation in fees exists among card
types;
(E) any documentation relating to a voluntarily
negotiated access agreement evidencing any
consideration being given or any marketing or
promotional agreements between the negotiating parties;
(F) a comparison of interchange rates in current use
in the 10 foreign countries having the highest volume
of credit card transactions with the interchange rates
charged in the United States under such agreement; and
(G) any amendments to that voluntarily negotiated
access agreement or documentation.
(3) Timing and availability of filings.--The negotiating
parties to any voluntarily negotiated access agreement executed
after the date of enactment of this Act shall jointly file the
voluntarily negotiated access agreement, and any documentation
or amendments described in paragraph (2), with the Antitrust
Division not later than 30 days after the date of execution of
the voluntarily negotiated access agreement or amendment or
after the creation of the documentation. The Antitrust Division
shall make publicly available any voluntarily negotiated access
agreement, amendment, or accompanying documentation filed under
this paragraph.
(f) Report to Congress by the Antitrust Division.--Within seven
months after the date of enactment of this Act, the Antitrust Division
shall transmit to the House Committee on the Judiciary and the Senate
Committee on the Judiciary a report on the negotiations conducted under
the authority of this section during the first six months after the
date of enactment and, if a voluntarily negotiated agreement is
reached, whether such access rates and terms will have an adverse
effect on competition and how such rates compare with access rates and
terms in current use in other countries. Such report shall contain a
chronology of the negotiations, an assessment of whether the parties
have negotiated in good faith, an assessment of the quality of the data
provided by the parties in their initial disclosures, a description of
any voluntarily negotiated agreements reached during the negotiations,
and any recommendations of the Antitrust Division concerning how
Congress should respond to the conduct of the negotiations.
(g) Effect on Pending Lawsuits.--Nothing in this section shall affect
liability in any action pending on the date of enactment of this
section.
SEC. 3. OPT-OUT.
Nothing in this Act shall limit the ability of acquirers or issuers
that are regulated by the National Credit Union Administration or that,
together with affiliates, have assets of less than $1,000,000,000, to
opt out of negotiations under this Act.
SEC. 4. CARDHOLDER SAVINGS.
Any agreements reached pursuant to the authority provided in section
2 shall provide that--
(1) when any fees that a merchant is charged for access to a
covered electronic payment system are reduced pursuant to any
such agreement, the merchant shall pass the benefits of any
such reduction in fees on to its customers or employees; and
(2) when any fees that a financial institution collects for
access to a covered electronic payment system are increased
pursuant to any such agreement, the financial institution shall
pass the benefits of any such increase in fees on to its
customers or employees.
SEC. 5. EFFECTIVE DATE.
This Act shall take effect on the date of the enactment of this Act.
Purpose and Summary
The purpose of H.R. 5546, the ``Credit Card Fair Fee Act of
2008,'' is to correct an imbalance that currently exists
between credit card companies on one side and merchants and
consumers on the other. The bill does this by giving a limited
antitrust exemption to merchants so they can negotiate with the
credit card companies for interchange fee rates and rules. H.R.
5546 also helps to ensure that consumers receive the benefits
of the exemption by mandating that any savings resulting from
the bill be passed on by whoever receives the benefit, whether
it be the merchants or the credit card companies.
Background and Need for the Legislation
The credit card industry is a highly profitable business,
with more than 691 million credit cards in circulation in the
United States, accounting for $1.8 trillion of consumer
spending.\1\ The credit card companies' annual earnings are in
the $40 billion range, and about half of all Americans
reportedly carry a balance on their high interest rate credit
cards. In addition, every time any credit card is used a
merchant pays an ``interchange fee.''\2\
---------------------------------------------------------------------------
\1\U.S. Gov't Accountability Office, Credit Cards, Increased
Complexity in Rates and Fees Heightens Need for More Effective
Disclosures to Consumers 9 (Sept. 2006); see also The Secret History of
the Credit Card (PBS television broadcast Nov. 23, 2004), http://
www.pbs.org/wgbh/pages/frontline/shows/credit/view/.
\2\Id; see also Brian K. Bucks, Arthur B. Kennickell, and Kevin B.
Moore, 2004: Recent Changes in U.S. Family Finances: Evidence from the
2001 and 2004 Survey of Consumer Finances, The Fed. Reserve Bd. (2004)
available at http://www.federalreserve.gov/pubs/oss/oss2/2004/
bull0206.pdf; Carolyn B. Maloney, Forever in Debt: Anti-Competitive
Credit Card Practices and Their Impact on the Economy (2008), available
at http://maloney.house.gov/documents/financial/creditcards/
20080730CreditCardFINALPub.pdf.
---------------------------------------------------------------------------
The Judiciary Committee's Task Force on Competition Policy
and Antitrust Laws has held two hearings on this issue. At the
first hearing, conducted in July of last year, concerns were
expressed that the large credit card companies could charge
excessive interchange fees because of market power; that
retailers have little ability to negotiate the fees; and that
there is a lack of transparency with regard to how the credit
card companies calculate their fees.\3\ After the hearing,
Chairman John Conyers Jr. (D-MI) and Representative Chris
Cannon (R-UT) introduced H.R. 5546, the ``Credit Card Fair Fee
Act of 2008.''\4\ The second hearing, conducted in May of this
year, focused on the legislation, which created a limited
antitrust immunity for negotiating voluntary agreements and, if
necessary, participating in market-based proceedings before a
panel of Electronic Payment System Judges to determine the
appropriate interchange fee.
---------------------------------------------------------------------------
\3\Credit Card Interchange Fees: Hearing Before the Task Force on
Competition Policy and Antitrust Laws of the H. Comm. on the Judiciary,
110th Cong. (2007).
\4\Original cosponsors of H.R. 5546 include Reps. Boozman (R-AR),
Carney (D-PA), Delahunt (D-MA), Gohmert (R- TX), Hall (R-TX), Lofgren
(D-CA), Peterson (R-PA), Platts (R-PA), Shuster (R-PA), Sullivan (R-
OK), Weiner (D-NY), Welch (D-VT), and Wilson (R-SC). There are
currently 44 cosponsors total.
---------------------------------------------------------------------------
CREDIT CARD INTERCHANGE FEES
What is an Interchange Fee?
Credit card interchange fees are fees charged when a
consumer uses any payment card at a retailer. The fees cover
the cost of processing the transaction, fraud protection,
billing statements, payment system innovations, and other
expenses. The interchange fee serves as payment from the
merchant's bank--the acquirer--to the cardholder's bank--the
issuer--for the underwriting, funding, and billing of the
merchant's customer.
The fee is a percentage established by the payment card
company, such as Visa or MasterCard, and is the most
significant portion of a ``merchant's discount rate.'' This
discount rate is the subject of an agreement between the
merchant and his or her bank, and represents the total amount
deducted by the merchant's bank from each card transaction.
Ultimately, the merchant discount rate is divided three ways
among the consumer's bank, the merchant's bank, and the credit
card company. Most of these financial institutions are members
of Visa, MasterCard, or both.
In the United States, the interchange fee averages
approximately 1.75% and the merchant discount rate averages
2.20% of card transactions. In 2007, interchange fees totaled
approximately $42 billion.\5\
---------------------------------------------------------------------------
\5\Press Release, Merchants Payment Coalition, Merchants Say that
Visa Fee Cut is Less Than Meets the Eye (Jun. 27, 2008) (on file with
The Merchants Payments Coalition (MPC), Unfair Credit Card Fees),
http://www.unfaircreditcardfees.com/site/page/about.
---------------------------------------------------------------------------
In recent years, the merchant discount rate and interchange
fee have become highly controversial, and the subject of
regulatory and antitrust investigations as well as several
lawsuits. Merchants and consumer groups insist that interchange
fees in the United States are not in line with economies of
scale, such as decreasing technology costs, as well as similar
lower fees charged in other countries. They maintain that
rising interchange fees are resulting in higher prices, lower
profits, and a burden on the consumer.
The payment card industry, however, warns that a
substantially greater harm to consumers will result if
interchange fees are artificially lowered. They claim that if
the fees are too low, consumers will ultimately suffer, because
payment card companies will offer fewer rewards, and will
charge higher annual fees and interest rates.\6\
---------------------------------------------------------------------------
\6\The payment card industry asserts interchange fees are already
naturally constrained, because if the fees are too high, the merchants
will not accept payment cards and will opt for competing forms of
payment, such as cash and checks, or new forms of payment, including
PayPal, Debitman, and Google Checkout.
---------------------------------------------------------------------------
How It Works
The electronic card transaction is completed in several
virtually simultaneous steps:
Step 1: Customer presents the card to the Merchant for
payment.
Step 2: Merchant's bank--the Acquirer--sends an
authorization request to the payment card company whose
name appears on the card, generally Visa or
MasterCard.\7\
---------------------------------------------------------------------------
\7\The other major competitor is American Express, which, unlike
Visa and MasterCard, functions as a closed-loop network. Known as a
``three-party'' system, it includes cardholders, merchants and a single
financial institution that offers proprietary network services. Thus,
American Express issues the cards, signs up merchants to accept the
cards, and performs the functions necessary to complete the
transactions. In this case, the merchant discount is paid in full to
the payment card company. The ``four-party'' system includes
cardholders, merchants, card issuing banks, and merchant acquiring
banks, using the services of a multiparty network such as Visa or
MasterCard.
Step 3: Visa/MasterCard matches the Acquirer with the
Cardholder's bank--the Issuer--and charges the Issuer
---------------------------------------------------------------------------
an Association Assessment Fee.
Step 4: Issuer authorizes the transaction, debits
Customer's account, credits Acquirer, and charges
Acquirer an Interchange Fee.
Step 5: Acquirer places payment in Merchant's account
and charges a Processing Fee.
Step 6: Merchant pays the Acquirer a Discount Rate--
which is a percentage of the total transaction--that
ultimately covers the Processing Fee, Interchange Fee,
and Association Assessment Fee.\8\
---------------------------------------------------------------------------
\8\For example, if a customer makes a $100 purchase at a retailer,
the merchant will pay on average $2.20 of that purchase to his bank--
the acquirer. Of that amount, the acquirer receives a ``processing
fee'' of approximately $.35 and pays an ``interchange fee'' of
approximately $1.75 to the customer's bank--the issuer. The issuer in
turn pays an ``association assessment fee'' of around $0.095 to Visa/
MasterCard.
In order to accept credit cards as a method of payment, a
merchant must first establish a merchant account by forming a
relationship with an acquiring bank.\9\ This relationship
enables the merchant to process transactions and obtain payment
from credit card purchases. The merchant discount rate, paid by
the retailer each time a transaction occurs, is based on sales
volume, type of payment card, type and size of accepting
merchant (e.g. online, in-store, phone order), and risk. The
rate is determined by multiplying the total credit card volume
by a percentage charged by the bank. Most rates fall between
one and 3 percent, and are based on the rate requirements of a
credit card company, such as Visa or MasterCard.\10\
---------------------------------------------------------------------------
\9\In some cases, the merchant instead forms a relationship with a
``transaction service,'' which matches the merchant and the bank
offering an optimal merchant discount rate.
\10\Merchant Discount. Free Encyclopedia of Ecommerce, http://
ecommerce.hostip.info/pages/722/Merchant-Discount.html (last visited
July 16, 2007).
---------------------------------------------------------------------------
Market Power and Efforts to Address the Problem with Antitrust Laws
The issue of market power has been sufficiently borne out
in the litigation between the merchants and the card companies
over the years. For example, in 2003, the Second Circuit
affirmed a district court's decision that Visa and MasterCard
have market power.\11\ Specific evidence supporting this
affirmation was that approximately 85 percent of the general
purpose cards issued in the United States are Visa and
MasterCard. Based upon these and other findings, including that
the market is very concentrated and there are high barriers to
entry, the Second Circuit affirmed the trial court ruling that
Visa and MasterCard ``jointly and separately, have power within
the market for network services.''\12\
---------------------------------------------------------------------------
\11\U.S. v. Visa U.S.A., Inc., 344 F. 3d 229, 239-40 (2d Cir.
2003).
\12\Id. This case marked a departure from earlier suits challenging
Visa's practices. A 1980 lawsuit, for example, challenged interchange
on grounds that Visa's setting of the fees constituted unlawful
horizontal price-fixing. The court rejected it on both per se and rule
of reason analyses grounds. The appellate court also rejected the
challenge and the Supreme Court declined to hear the case. Nat'l
Bancard Corp. v. Visa U.S.A., Inc., 596 F. Supp. 1231 (S.D. Fla. Sept.
20, 1984), aff'd, 779 F.2d 592 (11th Cir. 1986), cert denied, 479 U.S.
923 (1986).
---------------------------------------------------------------------------
Liability has been established for antitrust violations by
the credit card industry in recent years relating to the
exclusionary rules the industry imposed and the tying of debit
and credit cards.\13\ The only recent case that has been
resolved was dismissed because it was insufficiently plead,\14\
and in March of this year, the Ninth Circuit affirmed the
dismissal in Kendall v. Visa USA, Inc.\15\
---------------------------------------------------------------------------
\13\See, e.g., In re Visa Check/Mastermoney Antitrust Litigation,
2003 WL 1712568 (E.D.N.Y. April 1, 2003).
\14\Kendall v. Visa USA, Inc., 2005 WL 2216941 (N.D. Cal. July 25,
2005).
\15\Kendall v. Visa USA, Inc., 518 F.3d 1042 (9th Cir. 2008).
---------------------------------------------------------------------------
One case that is currently pending in district court may
provide some resolution on the question of whether the card
companies violate the antitrust laws in the setting of
interchange fees. This class action, filed in New York in 2005
by a group of nationwide retailers,\16\ alleges that Visa,
MasterCard and U.S. banks engage in collusive practices to fix
credit card interchange fees. The plaintiffs seek damages and
injunctive relief ``alleging that Visa, MasterCard and their
member banks have colluded to establish and fix the
`interchange fees' and other fees charged to merchants for
transactions processed over their credit card networks.''\17\
According to Labaton Sucharow LLP, serving on the Executive
Committee of this class action, ``defendants exploit their
credit card monopoly by forcing retailers to pay these
increasing fees, they forbid them from passing on the cost to
customers, and they forbid them from bypassing the credit card
networks and processing the transactions through agreements
with member banks.''\18\ The plaintiffs have filed a
consolidated complaint, and as of 2008, the case is still in
discovery. A motion to dismiss by the defendants was recently
denied.\19\
---------------------------------------------------------------------------
\16\In re Payment Card Interchange Fee & Merchant Discount
Antitrust Litigation, No. 05-MD-1720, 2008 WL 2428213 (E.D.N.Y. May 14,
2008).
\17\Labaton Sucharow LLP, In re Payment Card Interchange Fee and
Merchant Discount Antitrust Litigation, http://www.labaton.com/en/
cases/In-re-Payment-Card-Interchange-Fee-and-Merchant-Discount-
Antitrust-Litigation.cfm (last visited July 14, 2008).
\18\Id.
\19\In re Payment Card Interchange Fee & Merchant Discount
Antitrust Litigation, No. 05-MD-1720, 2008 WL 2428213 (E.D.N.Y. May 14,
2008).
---------------------------------------------------------------------------
Further, on July 1, 2008, the Department of Justice closed
an antitrust investigation into Visa Inc.'s restriction of
particular PIN debit transactions after the credit card company
repealed the regulation. The rule ``required merchants to treat
Visa-branded debit cards differently when used as a PIN-debit
card (and processed via non-Visa networks) from the same cards
when used as signature debit cards and processed on the Visa
network.''\20\ It was alleged that this was restricting PIN
debit transactions, specifically those of small value ($25 and
below) and transactions over the Internet, and also may have
reduced competition between Visa and PIN debit networks. Thomas
Barnett, Assistant Attorney General, Antitrust Division, said
that although this investigation is closed, ``the Department
remains prepared to investigate allegations of anticompetitive
conduct in this important industry.''\21\
---------------------------------------------------------------------------
\20\Press Release, U.S. Dep't of Justice, ``Visa Inc. Rescinds
Debit Card Rule as a Result of DOJ Dep't of Justice Antitrust
Investigation (July 1, 2008) (on file with author), http://
www.usdoj.gov/atr/public/press_releases/2008/234577.htm.
\21\Id.
---------------------------------------------------------------------------
MERCHANT AND CONSUMER PERSPECTIVES
Competition and Antitrust Issues
According to groups representing merchant interests, banks
and their agents (Visa and MasterCard) collectively set
interchange fees. They argue that as a result of this activity,
the interchange fee is likely the same regardless of which bank
issued the card used to make a purchase, or which bank signed
up the merchant making the sale. MasterCard sets interchange
fees on behalf of its approximately 20,000 member banks; Visa
USA also sets interchange fees on behalf of its approximately
14,000 member banks. As MasterCard allows its member banks to
also issue Visa cards, and Visa USA likewise allows its members
to issue MasterCard cards, many of Visa's 14,000 members are
also members of the MasterCard network. Merchants assert that
this behavior is anticompetitive and may constitute price
fixing.
Higher Interchange Fees Benefit Banks
Another argument made by merchant groups is that card
companies increase fees to encourage banks to issue their
cards. The higher the interchange fees charged by Visa or
MasterCard, the more money will flow to their member banks,
thus making Visa and MasterCard more attractive compared to
other systems. Further, special premium payment cards like
Visa's Signature card or MasterCard's World card charge even
higher interchange rates to offset offering additional rewards.
Merchant groups assert that the result is that member banks
have every incentive collectively to ensure that the card
system sets high interchange fees.
Merchants also explain that because they must take the
interchange fee into account when pricing products, consumers
who pay by means other than payment cards end up subsidizing
unrelated expenses such as marketing efforts by the card-
issuing banks.\22\ Yet only the payment card users, and not
customers who pay the same price using cash, earn benefits
through points, miles, cash-back features, and concierge
services.
---------------------------------------------------------------------------
\22\Id.
---------------------------------------------------------------------------
Given the size of the United States's economy and growing
membership of Visa and MasterCard, merchant groups say that in
a competitive market, scale and scope economies should result
in declining interchange fees. Instead, they say the fees have
doubled over the last 10 years. According to merchant group
estimates, only 13 percent of the interchange fee covers
processing costs, while 44 percent pays for rewards programs
including marketing, advertising, network servicing, profits,
and other expenses. They see this as the reason interchange
fees have been on the rise, despite decreasing costs of
technology. Other nations, including New Zealand, Australia,
Poland, and those of the European Union, have already reduced,
eliminated, or taken steps to limit interchange fees.\23\
---------------------------------------------------------------------------
\23\Terri Bradford and Fumiko Hayashi, Developments in Interchange
Fees in the United States and Abroad, Payment System Research Briefing.
(Federal Reserve Bank of Kansas City, Kansas City, MO), Apr. 2008,
available at http://www.kc.frb.org/Econres/PSR/Briefings/PSR-
BriefingApr08.pdf.
---------------------------------------------------------------------------
Impact on Merchant Viability
From the merchant perspective, as card payments become an
increasing percentage of consumer transactions--replacing
checks and cash--they become an even greater concern to all
retailers. The Food Marketing Institute (FMI) says that in the
past 10 years, many supermarkets have seen an increase in costs
associated with credit and debit card fees of 700 percent and
the merchant discount rate is ``exceeding the 1 percent profit
margin of a typical grocery store.''\24\ Merchants maintain
that the fee particularly impacts low margin businesses, where
the charges have become the second highest expense, below only
labor costs, with annual increases exceeding health care and
energy costs.\25\
---------------------------------------------------------------------------
\24\The Food Marketing Institute (FMI), Hidden Credit/Debit Card
Interchange Fees 1, available at http://www.fmi.org/gr/interchange/
FMIonepager.pdf.
\25\Id.
---------------------------------------------------------------------------
With the price of gas exceeding $4 a gallon and interchange
fees still on the rise, gas station owners in particular have
found their viability under serious threat. Last year,
convenience stores paid nearly $7.6 billion in credit card
fees, or more than double the industry profit of about $3.4
billion that year.\26\ As the Associated Press reports, in one
case a small gas station owner yielded $60 profit in 1 month on
gasoline sales, but paid nearly $500 that same month in
interchange fees.
---------------------------------------------------------------------------
\26\Tom Breen, Credit Card Fees: Some Gas Stations Say ``No More,''
Associated Press, June 18, 2008, available at http://ap.google.com/
article/ALeqM5hOFuBRfjgTqd4WKI1nbvn X3VUOPAD91CKD800.
---------------------------------------------------------------------------
Although MasterCard has placed a cap on the fees for
gasoline purchases of $50 or greater, and Visa recently
announced that it would adjust its interchange rate schedule in
response to gas prices, merchants insist that the change is not
enough--or may even have the reverse impact.\27\ Visa, for
example, lowered the interchange fees applied to all gas
station purchases to 1.15 percent (from 1.5 percent) of the
transaction price plus 25 cents flat fee. Closer analysis,
however, shows that the result will be that consumers ``making
high dollar amount transactions [using Visa Signature Preferred
Card] will pay less, but consumers with small transactions
[using a regular rewards card] will pay more.''\28\ Thus, most
gas station owners--those that operate in an area where
customers use the standard cards--will fail to benefit.
---------------------------------------------------------------------------
\27\Id.
\28\Posting of Adam Levitin to http://www.creditslips.org/
creditslips/2008/07/interchange-and.html#more (July 1, 2008, 23:22
EST). Credit Slips: A Discussion on Credit and Bankruptcy.
---------------------------------------------------------------------------
The Wall Street Journal explains that higher gas prices
``compound the fees that station operators must pay to credit-
card companies, because the fees are calculated as a percentage
of sales.''\29\ Large energy companies as well as many one-
store owners are exiting the gas-retailing business. Exxon
Mobil announced in June that ``it plans to sell its 2,220
stations in the U.S.; other oil companies already have shed
most of theirs.''\30\ For example, the Boston Globe wrote that,
``[d]ozens of gas stations in Massachusetts have stopped
selling gas or shut down, and hundreds more are expected to
follow suit because rising costs coupled with crippling credit
card fees and fewer customers make it impossible for them to
afford the roughly $40,000 it costs to refill their underground
tanks.''\31\ Further, ABC News reports that ``to combat the
hefty fees that card companies are charging gas stations, many
owners have passed the costs on to the consumer by charging
more per gallon if the payment is made with plastic instead of
cash.''\32\
---------------------------------------------------------------------------
\29\Ana Campoy, Gas Stations Hit Skids, Wall St. J., July 7, 2008,
at B12, available at http://s.wsj.net/article/
SB121538602450331005.html?mod=autos_feature--articles.
\30\Id.
\31\Michael Levenson, Gas Prices Drive Many Stations Out of
Business, The Boston Globe, June 19, 2008, available at http://
www.boston.com/news/local/articles/2008/06/19/
gas_prices_drive_many_stations_out_of_business/.
\32\Bianna Golodryga and Lee Ferran, Credit Card Fees Up Gas
Prices, ABC News, July 9, 2008, available at http://abcnews.go.com/GMA/
story?id=5338007&page=1.
---------------------------------------------------------------------------
Hearings
The Committee on the Judiciary Task Force on Competition
Policy and Antitrust Laws held two hearings on this issue.
First, the Task Force held a hearing on July 19, 2007, titled
``Credit Card Interchange Fees.'' Testimony was received from
Steve Smith, President and CEO, K-VA-T Food Stores, Inc.; John
Buhrmaster, President, First National Bank of Scotia, New York;
Edmund Mierzwinski, Consumer Program Director, U.S. PIRG;
Timothy Muris, Of Counsel, O'Melveny & Myers; and Mallory
Duncan, Senior Vice President and General Counsel, National
Retail Federation. Second, the Committee held a legislative
hearing on H.R. 5546, the ``Credit Card Fair Fee Act of 2008,''
on May 15, 2008. Testimony was received from Tom Robinson, CEO,
Robinson Oil Corporation; Joshua Floum, General Counsel and
Corporate Secretary, Visa, Inc.; Joshua Peirez, Chief Payment
System Integrity Officer, MasterCard Worldwide; John Blum, Vice
President of Operations, Chartway Federal Credit Union; Steve
Cannon, Chairman, Constantine Cannon, LLP; and Edward
Mierzwinski, Consumer Program Director, U.S. Public Interest
Research Group.
Committee Consideration
On July 16, 2008, the Committee met in open session and
ordered the bill, H.R. 5546, favorably reported with an
amendment, by a rollcall vote of 19 to 16, a quorum being
present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
following rollcall votes occurred during the Committee's
consideration of H.R. 5546.
1. An amendment by Mr. Sherman to change the definition of
``merchant'' so that it would mean any person who accepts
credit cards or debit cards in payment for goods or services
that they provide and employs fewer than 500 employees for each
working day during each of the 20 or more calendar workweeks in
the current or preceding calendar year. Defeated 9 to 22.
ROLLCALL NO. 1
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Conyers, Jr., Chairman...................................... X
Mr. Berman...................................................... X
Mr. Boucher.....................................................
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren..................................................... X
Ms. Jackson Lee................................................. X
Ms. Waters......................................................
Mr. Delahunt....................................................
Mr. Wexler......................................................
Ms. Sanchez..................................................... X
Mr. Cohen.......................................................
Mr. Johnson..................................................... X
Ms. Sutton......................................................
Mr. Gutierrez...................................................
Mr. Sherman..................................................... X
Ms. Baldwin.....................................................
Mr. Weiner...................................................... X
Mr. Schiff......................................................
Mr. Davis....................................................... X
Ms. Wasserman Schultz........................................... X
Mr. Ellison..................................................... X
Mr. Smith (Texas)............................................... X
Mr. Sensenbrenner, Jr........................................... X
Mr. Coble....................................................... X
Mr. Gallegly.................................................... X
Mr. Goodlatte................................................... X
Mr. Chabot...................................................... X
Mr. Lungren..................................................... X
Mr. Cannon...................................................... X
Mr. Keller...................................................... X
Mr. Issa........................................................ X
Mr. Pence....................................................... X
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Feeney...................................................... X
Mr. Franks...................................................... X
Mr. Gohmert..................................................... X
Mr. Jordan...................................................... X
-----------------------------------------------
Total....................................................... 9 22
----------------------------------------------------------------------------------------------------------------
2. Motion to report H.R. 5546 favorably. Passed 19 to 16.
ROLLCALL NO. 2
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Conyers, Jr., Chairman...................................... X
Mr. Berman...................................................... X
Mr. Boucher..................................................... X
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren..................................................... X
Ms. Jackson Lee................................................. X
Ms. Waters......................................................
Mr. Delahunt....................................................
Mr. Wexler...................................................... X
Ms. Sanchez..................................................... X
Mr. Cohen.......................................................
Mr. Johnson..................................................... X
Ms. Sutton...................................................... X
Mr. Gutierrez...................................................
Mr. Sherman.....................................................
Ms. Baldwin..................................................... X
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Mr. Davis....................................................... X
Ms. Wasserman Schultz........................................... X
Mr. Ellison..................................................... X
Mr. Smith (Texas)............................................... X
Mr. Sensenbrenner, Jr........................................... X
Mr. Coble....................................................... X
Mr. Gallegly.................................................... X
Mr. Goodlatte................................................... X
Mr. Chabot...................................................... X
Mr. Lungren..................................................... X
Mr. Cannon...................................................... X
Mr. Keller...................................................... X
Mr. Issa........................................................ X
Mr. Pence....................................................... X
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Feeney...................................................... X
Mr. Franks...................................................... X
Mr. Gohmert..................................................... X
Mr. Jordan...................................................... X
-----------------------------------------------
Total....................................................... 19 16
----------------------------------------------------------------------------------------------------------------
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 5546, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 31, 2008.
Hon. John Conyers, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 5546, the Credit
Card Fair Fee Act of 2008.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susan Willie,
who can be reached at 226-2860.
Sincerely,
Peter R. Orszag,
Director.
Enclosure
cc:
Honorable Lamar S. Smith.
Ranking Member
H.R. 5546--Credit Card Fair Fee Act of 2008.
SUMMARY
H.R. 5546 would provide limited immunity from antitrust
laws to merchants and financial services organizations that
negotiate an agreement setting the terms for using electronic
payment systems to process transactions using credit cards. A
representative of the Department of Justice (DOJ) would be
required to attend all negotiation sessions. The department
would be required to make any agreements that result from the
negotiations available to the public and to prepare an analysis
and report of the results of the negotiations.
Based on information from DOJ, CBO estimates that
implementing H.R. 5546 would cost about $6 million in 2009 and
$33 million over the 2009-2013 period, assuming appropriation
of the necessary amounts. Enacting H.R. 5546 would not affect
direct spending or revenues.
H.R. 5546 contains an intergovernmental mandate as defined
in the Unfunded Mandates Reform Act (UMRA) because it would
preempt State antitrust laws. CBO estimates that because the
preemption would only limit the application of State law, the
mandate would impose no costs on State, local, or tribal
governments.
H.R. 5546 would impose private-sector mandates, as defined
in UMRA, on certain issuers for, acquirers for, and owners and
operators of covered electronic payment systems as well as
certain merchants using covered electronic payment systems. The
bill also would prevent individuals from seeking damages under
certain antitrust laws for negotiations authorized under the
bill. CBO expects that the direct costs to comply with those
mandates would not be significant and would fall below the
annual threshold established in UMRA for private-sector
mandates ($136 million in 2008, adjusted annually for
inflation).
ESTIMATED COST TO THE FEDERAL GOVERNMENT
The estimated budgetary impact of H.R. 5546 is shown in the
following table. The costs of this legislation fall within
budget function 370 (commerce and housing credit).
By Fiscal Year, in Millions of Dollars
----------------------------------------------------------------------------------------------------------------
2009 2010 2011 2012 2013 2009-2013
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Estimated Authorization Level 7 6 7 7 7 34
Estimated Outlays 6 6 7 7 7 33
----------------------------------------------------------------------------------------------------------------
BASIS OF ESTIMATE
For this estimate, CBO assumes that the bill would be
enacted near the start of fiscal year 2009 and that spending
would follow historical patterns for similar activities.
H.R. 5546 would provide limited immunity from antitrust
laws to merchants and financial services organizations that
enter into voluntary negotiations to set terms for using
electronic systems for clearing credit card transactions. The
bill would require the Antitrust Division of the Department of
Justice to collect information about the parties' schedule for
negotiation and any agreements that would result from such
negotiations. Further, a representative of the Antitrust
Division would be required to attend all negotiation sessions.
Because H.R. 5546 would provide broad authority for
merchants and providers of electronic payment services to join
together to negotiate rates and terms for access to a payment
system, it is unclear how many negotiations may be initiated as
a result of the bill. For example, a large number of small
groups may form--that is, gas station owners, businesses with
fewer than 50 employees, or retail merchants--or a smaller
number of fairly large groups may form. Based on information
from DOJ regarding the additional workload in the face of such
uncertainty, CBO estimates that the agency would require an
additional 35 staff positions to attend negotiation sessions
for as many as 500 such groups, monitor the information
submitted by the participating parties, and meet the bill's
reporting requirements. CBO estimates that implementing H.R.
5546 would cost $6 million in 2009 and $33 million over the
2009-2013 period, assuming appropriation of the necessary
amounts. The costs would be incurred mostly for salaries and
benefits, as well as for start-up costs in the first year to
set up information-collection systems.
ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS
H.R. 5546 contains an intergovernmental mandate, but CBO
estimates that the mandate would impose no costs on State,
local, or tribal governments. By exempting agreements between
merchants and credit card companies from State antitrust laws,
the bill would preempt State law. That preemption would be a
mandate as defined in UMRA, but the bill would impose no duty
on States that would result in additional spending.
ESTIMATED IMPACT ON THE PRIVATE SECTOR
H.R. 5546 contains private-sector mandates, as defined in
UMRA, because the bill would impose requirements on the 10
largest entities in each of the following categories:
LFinancial institutions that issue electronic
devices such as credit cards and debit cards for use in
an electronic payment system, or acquire access to
electronic payment systems for merchants to use in
accepting credit cards and/or debit cards for payment;
LOwners and operators of electronic payment
systems that have been used for at least 20 percent of
the combined dollar value of U.S. credit; and
LMerchants using certain electronic payment
systems.
Those entities would be required to provide information to
the Antitrust Division of the DOJ. According to industry
representatives, the costs to comply with those mandates would
be small. In addition, the bill would exempt financial services
organizations and merchants from certain antitrust statutes
when negotiating access rates using the process authorized by
the bill. As a result, private entities would be prevented from
seeking damages under certain antitrust laws from entities
participating in the negotiation process under the bill. Based
on information from industry experts, the cost to comply with
this mandate would likely be small as no such suits have been
filed or are expected to be filed under current law. Therefore,
CBO estimates that the aggregate cost of the mandates would
fall below the annual threshold established in UMRA for
private-sector mandates ($136 million in 2008, adjusted
annually for inflation).
ESTIMATE PREPARED BY:
Federal Costs: Susan Willie (226-2860)
Impact on State, Local, and Tribal Governments: Elizabeth Cove
(225-3220)
Impact on the Private Sector: Jacob Kuipers (226-2940)
ESTIMATE APPROVED BY:
Theresa Gullo
Deputy Assistant Director for Budget Analysis
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
5545 will provide an antitrust exemption for merchants so they
can negotiate with credit card companies with market power for
interchange fee rates.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in article I, section 8, clause 3 of the
Constitution.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 5446 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(d), 9(e), or 9(f) of Rule XXI.
Section-by-Section Analysis
The following discussion describes the bill as reported by
the Committee.
Sec. 1. Short title. Section 1 sets forth the short title
of the bill as the ``Credit Card Fair Fee Act of 2008.''
Sec. 2. Limited Antitrust Immunity for the Negotiation and
Determination of Rates and Terms for Access to Covered
Electronic Payment Systems. Section 2(a) defines the following
terms: ``Access agreement,'' ``Acquirer,'' ``Antitrust
Division,'' ``Antitrust Laws,'' ``Credit card,'' ``Covered
electronic payment system,'' ``Debit card,'' ``Electronic
payment system,'' ``Financial institution,'' ``Issuer,''
``Market power,'' ``Merchant,'' ``Negotiating party,''
``Person,'' ``Provider,'' ``State,'' ``Terms,'' and ``Voluntary
negotiated access agreement.''
Section 2(b) sets forth the limited antitrust immunity for
negotiation of access rates and terms to covered electronic
payment systems. The section allows merchants and covered
electronic payment systems to jointly negotiate and agree upon
rates and terms for access to the system, including through the
use of common agents. This section also specifies that the
immunity does not apply to a provider of an electronic payment
system, or to a merchant, during any period in which the
provider or merchant is engaged in any unlawful boycott.
Section 2(c) provides that the rates and terms of a
voluntarily negotiated access agreement must be the same for
all merchants, regardless of merchant category or volume of
transactions generated, and shall also be the same for all
providers, regardless of provider category or volume of
transactions generated.
Section 2(d) requires the parties, within 1 month after
enactment of this Act, to file with the Antitrust Division a
schedule for negotiations. If the parties do not file a
schedule, the Antitrust Division must issue a schedule. Some
parties are required to make initial disclosures to facilitate
negotiations. These disclosures must be made by the ten largest
issuers for a covered electronic payment system (in terms of
number of cards issued), the ten largest acquirers (in terms of
number of merchants served), and a person who operates or
controls a covered electronic payment system. The disclosures
must include an itemized list of costs necessary to provide the
system for the most recent calendar year and any access
agreement between that person and one or more merchants. The
disclosures must also be made by the ten largest merchants
(based on dollar amount of transactions made with the covered
electronic payment system). The merchants must disclose an
itemized list of the costs necessary to access the system
during the most recent calendar year and any access agreement
between that person and one or more providers of the system.
The Antitrust Division shall resolve any disagreements as to
whether a person is required to make an initial disclosure. A
representative of the Antitrust Division will attend all
negotiation sessions conducted under subsection (a).
Section 2(e) requires any parties who reach a voluntarily
negotiated access agreement to file with the Antitrust Division
a copy of the agreement; the various components of the
interchange fee; a description of how access fees that
merchants pay are allocated among financial institutions and
how they are spent; whether a variation in fees exists among
card types; documentation relating to a voluntarily negotiated
access agreement evidencing any consideration being given or
any marketing or promotional agreements between the parties; a
comparison of interchange rates in current use in the 10
foreign countries having the highest volume of credit card
transactions with interchange rates charged in the United
States under such agreement; and any amendments to the
voluntarily negotiated access agreement or documentation. The
parties must make this filing within 30 days after the date of
execution of a voluntarily negotiated access agreement or
amendment or after the creation of the documentation. The
Antitrust Division will make this information publicly
available.
Section 2(f) requires the Antitrust Division to file a
report to the House and Senate Judiciary Committees detailing
the negotiations and, if an agreement is reached, whether such
access rates and terms will have an adverse effect on
competition and how such rates compare with access rates and
terms in current use in other countries. The report must
contain a chronology of negotiations, an assessment of the
quality of data provided by the parties in their initial
disclosures, an assessment of whether the parties negotiated in
good faith, and recommendations concerning how Congress should
respond to the conduct of the negotiations.
Section 2(g) provides that section 2 may not affect
liability in any action pending on the date of enactment of
this section.
Sec. 3. Opt-Out. Section 3 allows acquirers or issuers that
are regulated by the National Credit Union Administration or
that, together with affiliates, have assets of less than
$1,000,000,000, to opt out of negotiations under the Act.
Sec. 4. Cardholder Savings. Section 4 provides that any
agreements reached under Section 2(c) shall ensure that any
savings or benefits received as a result of this bill, whether
it be by merchants or financial institutions, shall be passed
on to the customers or employees.
Sec. 5. Effective Date. Section 5 provides that the Act
shall take effect on the date of enactment.
Additional Views
The mark-up of H.R. 5546, the ``Credit Card Fair Fee Act of
2008'' was unusual. The bill was reported favorably out of
House Judiciary Committee by a vote of 19 ayes to 16 nays. That
is not strange. What was peculiar was that ten Democrats and
nine Republicans voted for the measure and eight Democrats and
eight Republicans voted against it. While such results may not
be uncommon in other committees, they are all but unheard of on
the House Judiciary Committee.
The Committee's fractured vote reflects the complicated
nature of the interchange debate. Every Member has constituents
that strongly favor and oppose this legislation. That is to be
expected when both MasterCard and Visa have tens of thousands
of issuing banks and millions of accepting merchants. The
debate has been clouded further by the contrasting, and, at
times, completely contradictory claims made by both merchants
and banks.
What became clear during the Committee's four and one-half
hour consideration of the measure is that many Members,
including those that voted against the bill, believe that there
is a problem in the way that interchange rates are set in this
country. It was equally apparent that most Members, including
those that supported the legislation, have questions and
concerns about how it will work in practice.
BACKGROUND
In the last 10 years, America has gone through a radical
transformation in the way it pays for its goods and services.
In 1996 almost 80% of all transactions were made with checks or
cash.\1\ Today, less than half of the purchases are conducted
in those old ways. By 2010, the Nilson Report, an industry
newsletter, estimates that consumers will use credit and debit
cards for over 70% of all their purchases. The growth in the
use of credit and debit cards has occurred in the old fashioned
brick and mortar stores, but it has also facilitated a whole
new brand of commerce. Without credit cards, e-commerce as we
know it today would not exist.
---------------------------------------------------------------------------
\1\Robert J. Samuelson, The Cashless Society Has Arrived, Newsweek,
June 25, 2007 (available at http://www.msnbc.msn.com/id/19263119/site/
newsweek/).
---------------------------------------------------------------------------
Properly used, credit cards offer many benefits for
consumers and businesses alike. For consumers, they offer fraud
protection, payment flexibility, the ability to track purchases
and rewards miles. For merchants, they offer guaranteed, faster
payment and the opportunity to expand business through Internet
and phone sales. Further, some studies have shown that
consumers who use credit or debit cards at the time of purchase
are likely to spend more than they would otherwise.
These benefits come at a price. Visa and MasterCard, the
two largest credit card networks in the country, impose a
number of fees on consumers. These include the interest that
consumers pay on their purchases, as well as late fees and fees
associated with reward programs. However, consumers pay a
different fee, called an interchange fee, every time they make
a purchase with a credit card. The interchange fee, which is
set by Visa and MasterCard, is actually deducted from the funds
that a merchant receives on a purchase. So, for example, if a
consumer buys $100 worth of goods on his Visa card, the
merchant only receives $98.50 from the issuing bank, with the
$1.50 constituting the interchange fee.\2\ While the merchant
pays this cost directly, it is ultimately passed on to
consumers in the form of higher prices.
---------------------------------------------------------------------------
\2\Technically, the difference between what the merchant charges
the consumer for the product and what the merchant receives from the
issuing bank is called a ``merchant discount fee.'' However, the
merchant discount fee is largely based on the interchange fees that are
charged between banks in the course of the transaction.
---------------------------------------------------------------------------
The Merchants Payment Coalition\3\ feels that the
interchange fees are unduly high and unchanging, two things
that they consider to be indicative of Visa and MasterCard's
anticompetitive practices. Second, they challenged Visa and
MasterCard's practice of keeping the rules surrounding
interchange fees secret from the retailers themselves. They
claimed that the only time that they learn of the contents of
the interchange rules is when Visa and MasterCard assesses them
a fee for violating the rules.
---------------------------------------------------------------------------
\3\The Merchant Payments Coalition members are the Food Marketing
Institute, National Association of Convenience Stores, National Grocers
Association, National Retail Federation, National Association of Chain
Drug Stores, American Petroleum Institute, Retail Industry Leaders
Association, Petroleum Marketers Association of America, Society of
Independent Gasoline Marketers of America, National Council of Chain
Restaurants, National Association of College Store, National
Association of Truck Stop Operators, International Association of
Airport Duty Free Stores, National Association of Theater Owners,
American Beverage Licensees, Bowling Proprietors Association of
America, National Association of Shell Marketers, Interactive Travel
Services Association, and the National Restaurant Association, among
others.
---------------------------------------------------------------------------
Visa and MasterCard's member banks have formed their own
coalition, the Electronic Payments Coalition.\4\ They contend
that interchange fees are necessary to conduct the complicated
transactions that take place when a consumer uses a credit or
debit card to purchase a product. The Electronic Payments
Coalition thinks that retailers are trying to get the benefits
of credit card payment systems (increased sales, guaranteed
payment, Internet and telephone sales), without the costs,
namely interchange fees. Partially as a result of the House
Judiciary Committee's hearings, both Visa and MasterCard have
begun publishing all of their rules on their website.
---------------------------------------------------------------------------
\4\The Electronic Payments Coalition includes Advanta Corporation;
Alabama Bankers Association; America's Community Bankers; American
Bankers Association; American Express Company; American Financial
Services Association; Bank of America; Barclays Bank; Californian
Bankers Association; Capital One Financial Corporation; Card Services
For Credit Unions, Inc.; Citi; Colorado Bankers Association; Comdata;
Consumer Bankers Association; Delaware Bankers Association; Financial
Services Roundtable; Florida Bankers Association; Georgia Bankers
Association; Hawaii Bankers Association; Hawaii Financial Services
Association; HSBC North America; Independent Community Bankers of
America; Iowa Bankers Association; JPMorgan Chase; Maryland Bankers
Association; Massachusetts Bankers Association; MasterCard Worldwide;
Mid-Atlantic Financial Services Coalition; Minnesota Card Coalition;
Mississippi Bankers Association; Montana Bankers Association; National
Association of Federal Credit Unions; Nebraska Bankers Association;
Nevada Bankers Association; New Hampshire Bankers Association; New
Mexico Bankers Association; New York Bankers Association; North
Carolina Bankers Association; Ohio Bankers League; Ohio Financial
Services Association; Oklahoma Bankers Association; Pennsylvania
Bankers Association; PSCU Financial Services; Puerto Rico Bankers
Association; South Dakota Bankers Association; Tennessee Bankers
Association; Texas Bankers Association; U.S. Bank; Vermont Bankers
Association; Visa USA; Washington Bankers Association; Washington
Mutual; Wells Fargo; West Virginia Bankers Association; and Wisconsin
Bankers Association.
---------------------------------------------------------------------------
THE INTERCHANGE FEE
One of the principal complaints against Visa and MasterCard
is that the interchange fees that they set are higher than what
they would be in a competitive environment. The Association for
Convenience & Petroleum Retailing (NACS) estimates that its
members paid credit card fees in the amount of $6.6 billion in
2006. By comparison, they claim that their members made $4.77
billion in profit in 2006. Simply put, from NACS' perspective,
the banks made more on the sale of goods at convenience stores
than the convenience stores did themselves. The Merchant
Payment Coalition insists that this is only possible because
Visa and MasterCard dominate the market for credit card
transactions, which merchants feel compelled to accept. The
Merchant Payments Coalition also insists that these fees go to
pay for the numerous credit card solicitations that people
receive.
By contrast the Electronic Payment Coalition insists that
Visa and MasterCard set their interchange fees in a way that is
designed to encourage banks to issue their cards and for
merchants to accept them. They contend that the interchange
fees must be high enough for issuing banks to take on the risks
and responsibilities of issuing cards, such as the expenditures
for marketing and fraud protection. Similarly, the fees they
set cannot be so high that merchants would not want to accept
the cards. Simply put, if too few merchants want to accept the
cards, then consumers will not demand them and the whole system
collapses. The Electronic Payment Coalition argues that the
fact that the merchants now feel compelled to accept cards
because so many consumers have them is a sign that the system
is working.
This kind of pricing structure is known as a two-sided
market.\5\ On one side of the market are consumers, who are
price sensitive. The evidence seems to be--based on the number
and variety of credit card offerings, including no-fee cards--
that there is intense competition on the part of issuing banks
to obtain cardholders. On the other side of the market are the
merchants, who are somewhat price insensitive. That is, banks
can raise interchange fees--and the merchant discount fees--and
most merchants will continue to accept the credit cards.
---------------------------------------------------------------------------
\5\See, e.g., Benjamin Klein, Andres V. Lerner, Kevin M. Murphy,
and Lacey L. Plache, Competition in Two-Sided Markets: The Antitrust
Economics of Payment Card Interchange Fees, Antitrust L.J. 571 (2006).
---------------------------------------------------------------------------
This kind of cross-subsidization of users is not uncommon
in two-sided markets. The model that is frequently cited here
is newspapers, where the merchants that purchase advertising in
a newspaper subsidize the purchase price of the consumers who
buy the paper at newsstands. In other words, absent the
advertisers' dollars, consumers would have to pay significantly
more for a newspaper. However, in the newspaper context,
merchants have the option of advertising in either a rival
newspaper, on the radio, on TV, or over the Internet. That
competition restrains the amount that newspapers can charge
merchants for advertisements.
Within the context of payment systems, both Visa and
MasterCard charge very different interchange fees on some types
of merchants than they do on others. These differences may be
accounted for by the varying demand for credit cards among
industries. For example, grocery stores, which traditionally
operated on cash and checks, were slow to adopt credit cards as
a payment system. Accordingly, the credit card networks and
issuing banks charged a lower interchange rate for purchases at
grocery stores as a way to entice those stores to accept the
cards. Conversely, online merchants could not exist without
credit cards. As a result, they pay much higher interchange
fees.\6\
---------------------------------------------------------------------------
\6\The difference in fees is also explained, in part, because
online transactions--or so-called ``no card present'' transactions--
present a greater risk of fraud for the issuing bank.
---------------------------------------------------------------------------
These fees vary by merchant class, size of merchant,
whether a card is present or not (higher fraud likelihood), and
types of rewards offered. To use but one narrow example, a
retailer that has a minimum of 45 million Visa credit card
transactions totaling a minimum of $2.9 billion (and that meets
certain other requirements) would be assessed an interchange
fee of 2.3% + $.10 for an online sale (card not present) with a
Visa Signature Preferred (highest rewards) card.\7\ That same
merchant would be assessed 1.65% + $.10 for a Visa Signature
sale, and 1.43% + $.10 for a traditional rewards or no rewards
card.
---------------------------------------------------------------------------
\7\Visa U.S.A. Interchange Reimbursement Fees July 2008 (available
at http://usa.visa.com/download/merchants/visa-usa-july2008-
interchange-rates.pdf).
---------------------------------------------------------------------------
If competition in the two-sided market works in the manner
described by the credit card companies, then, theoretically,
one would expect their ability to raise prices on merchants to
be constrained by the merchants' ability to switch to another
form of payment (either another brand of credit card or cash or
check). It is an open question, however, whether Visa or
MasterCard has ever raised its rates so far on a class of
merchants that it has become unprofitable for it to maintain
that rate. That is, we do not know whether Visa or MasterCard
has ever been compelled to lower its rates for a particular
class of merchants because its higher interchange rates caused
those merchants to either switch to another brand of credit
card or to accept only cash or checks.
Perhaps understandably, Visa and MasterCard have been
reluctant to discuss the details of how they set their
interchange rates. Further, while they dispute the merchants'
claims about how interchange fees are used, Visa and MasterCard
have not--and they claim cannot--provided even a general
accounting of how the issuing banks use interchange fees.
However understandable, this lack of transparency does nothing
to dispel Members' concerns that merchants' needs are not
adequately considered in setting the fee.
What does seem clear from the record before the Committee
is that, on average, Visa and MasterCard's interchange rates
bear more than a passing resemblance to each other. They are
significantly below the interchange fees charged by American
Express and above the rates charged by Discover. Based on their
advertising alone, it is clear that both Visa and MasterCard
intend for their payment systems to replace the use of cash and
checks in the near future. Given consumers' recent spending
habits, they may well get their wish.
Further, the U.S. Government Accountability Office recently
found that the Treasury's Financial Management Service, which
handles the majority of the federal government's card
transactions, had tried--and failed--to negotiate lower
interchange fees with MasterCard and Visa.\8\ The same report
found that the U.S. Postal Service had ``some limited success''
in negotiations over interchange fees.\9\ Given the size of the
entities involved, not to mention the backing of the full faith
and credit of the U.S. Government, it is hard to imagine that
smaller merchants would enjoy much success in directly
negotiating interchange fees with MasterCard and Visa.
---------------------------------------------------------------------------
\8\U.S. Gen. Accountability Office, Credit and Debit Cards: Federal
Entities Are Taking Actions to Limit Their Interchange Fees, but
Additional Revenue Collections Cost Savings May Exist 25 (2008).
\9\Id.
---------------------------------------------------------------------------
While none of this makes for a clear-cut case of collusion
between MasterCard and Visa regarding the setting of
interchange fees, it has raised significant concerns in our
minds about the fairness of the system. Even if MasterCard and
Visa's actions were appropriate when they were just getting
started, as the recent antitrust cases against Microsoft prove,
the kind of behavior that companies can engage in when they are
small market players is not necessarily acceptable when their
market shares grow to almost 80%.
LITIGATION
Individual retailers and retailing associations, including
members of the Merchants Payments Coalition, have sued
MasterCard, Visa, and a number of issuing banks under Section 1
of the Sherman Act\10\ for setting the interchange fee at
levels higher than what a competitive market would allow. These
suits have been consolidated in the Federal District Court for
the Eastern District of New York. Currently, the suits are in
the early phases of discovery.
---------------------------------------------------------------------------
\10\15 U.S.C. Sec. 1.
---------------------------------------------------------------------------
This is but the latest in a series of antitrust suits
against Visa and MasterCard. Earlier efforts to challenge
interchange rates on antitrust grounds in U.S. courts have not
fared well.\11\ However, recent challenges to other credit card
practices, have been more successful. For example, in the mid-
1990s the Department of Justice successfully sued Visa and
MasterCard for their rules that prohibited member banks from
issuing a rival card (such as Discover or American
Express).\12\ More recently, Visa and MasterCard agreed to pay
over $3 billion in a settlement with Wal-Mart and other
retailers for their practice of tying their debit and credit
card offerings.\13\ Among other things, the settling retailers
claimed that this tying practice resulted in higher interchange
fees than they would have incurred in a competitive market.
---------------------------------------------------------------------------
\11\See, e.g., Nat'l Bancard Corp. (NaBanco) v. Visa U.S.A., Inc.,
596 F. Supp. 1231 (S.D. Fla. 1984), aff'd 779 F.2d 592 (11th Cir.
1986); and Kendall v. Visa U.S.A., Inc., 2005 WL 2216941 (N.D. Cal.
2005), aff'd 518 F.3d 1042 (9th Cir. 2008).
\12\United States v. Visa U.S.A., Inc., 163 F. Supp. 2d 322, 340-42
(SDNY 2001), aff'd 344 F.3d. 229 (2d Cir. 2003), cert. denied, 543 U.S.
811 (2004).
\13\In re Visa Check/Mastermoney Antitrust Litigation, 297
F.Supp.2d 503, 2004-1 Trade Cases P 74,262 (E.D.N.Y. Dec 19, 2003),
aff'd sub nom., Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96
(2d Cir. 2005), cert. denied, Leonardo's Pizza by the Slice, Inc. v.
Wal-Mart Stores, Inc., 544 U.S. 1044 (2005).
---------------------------------------------------------------------------
Visa and MasterCard, relying on cases such as NaBanco, are
confident that they will successfully defend their interchange
fees in the face of this court challenge. However, as the
NaBanco court noted, ``VISA is a joint venture-type enterprise
in which the [interchange fee] acts as an internal control
mechanism that yields procompetitive efficiencies that its
members could not create acting alone, and helps create a
product that its members could not produce singly.''\14\ While
that statement may have been true at a time when banking laws
prevented banks from functioning as national entities, it is
unclear whether the largest Visa and MasterCard issuers, such
as Bank of America, Citibank, JP MorganChase, and Capital One
could not create their own issuing networks free of the Visa
and MasterCard brands.
---------------------------------------------------------------------------
\14\NaBanco, 779 F.2d at 605 (emphasis added).
---------------------------------------------------------------------------
That said, Congress should be reluctant to intervene in
ongoing litigation. However, the relief the merchants are
seeking in this legislation could not be ordered by any court.
To the extent that Congress provides a remedy through this, or
other legislation, it will have to address whether such
legislation will be the exclusive prospective remedy for the
merchants. Of course, if a court finds that banks violated the
antitrust laws in the establishment of interchange fees, then
the merchants will be entitled to whatever monetary damages the
court deems appropriate.
ISSUES WITH H.R. 5546
Chairman Conyers introduced H.R. 5546, the ``Credit Card
Fair Fee Act of 2008,'' on March 6, 2008. As introduced, the
proposed legislation grants a limited antitrust exemption to
both the banks and the merchants to negotiate jointly the terms
and rates that banks charge merchants per consumer transaction.
If the parties cannot agree voluntarily to such terms and
conditions, then the parties are subject to an administrative
procedure before a three-judge panel that will determine the
rates and terms for a three year period. The three-judge panel
will be selected and administered by the Department of
Justice's Antitrust Division and the Federal Trade Commission.
Criticisms of the bill range from the practical, such as
how all of the merchants and all of the banks would effectively
negotiate an interchange fee agreement, to the philosophical,
such as the Antitrust Modernization Commission's admonition
that antitrust immunities should be granted rarely. Given that
this bill would authorize one of the largest antitrust
exemptions in history, these are areas in which Committee
oversight could be particularly valuable.
Many of these criticisms were heard at a hearing in the
Task Force on Competition Policy and Antitrust Laws on May 15,
2008, at which the following witnesses testified: Mr. Thomas L.
Robinson, Vice President of Regulations, National Association
of Convenience Stores; Mr. Joshua R. Floum, General Counsel and
Corporate Secretary, Visa Inc.; Mr. Joshua Peirez, Chief
Payment System Integrity Officer, MasterCard Worldwide; Mr.
Steve Cannon, Chairman, Constantine Cannon LLP; Mr. John Blum,
Vice President of Operations, Chartway Federal Credit Union;
and Mr. Ed Mierzwinski, Consumer Program Director, U.S. Public
Interest Research Group.
Following the hearing, on June 2, 2008, Ranking Member
Smith sent a letter to the Federal Trade Commission and the
Department of Justice requesting their views on H.R. 5546. The
DOJ responded on June 23, 2008, with a letter expressing
reservations about the creation of an antitrust exemption for
merchants to counter-balance the perceived market power of the
banks. The Department also suggested that this bill likely
would not benefit consumers because it would result in the loss
of airline miles and other card benefits. The Department had
significant concerns about the three-judge panel, including an
assertion that it violates the appointments clause of the
Constitution.
The FTC responded on June 19, 2008. The FTC observed that
antitrust exemptions should be disfavored and only granted when
there is a clear showing of need. However, the Commission did
not opine that the need had not been demonstrated here. With
respect to the administrative burden that the bill would place
on the FTC, the Commission wrote that ``a governmental process
for setting prices for private transactions is at odds with the
Commission's mission . . . in promoting open market
competition.'' The Commission also noted that splitting the
administrative responsibilities between DOJ and FTC could
complicate the administration of the three-judge panel.
Chairman Conyers attempted to address these concerns by
eliminating the three-judge panel and replacing it with DOJ
oversight over the negotiations. The manager's amendment also
provided an opt-out from the negotiations for small banks and
credit unions and had language that would try to ensure that
consumers received the benefits of this legislation. In the
main, these were good changes, but they raise as many questions
as they answer.
No one knows how these new oversight and reporting
requirements will burden DOJ. For example, the bill requires
that the merchants and banks file a schedule for negotiations
with the Department's Antitrust Division. If they do not file
such a schedule, the Antitrust Division is required to
formulate a schedule and inform the parties. How the Antitrust
Division will identify all of the parties--including the tens
of thousands of issuing banks and the millions of merchants
involved--much less notify them all is uncertain.
The opt-out provision for small banks and credit unions is
new, too. No one knows which small banks will take this opt-out
or how that will affect negotiations between the other parties.
Similarly, while the bill requires banks and merchants to
negotiate, it says nothing about what happens if the parties
cannot reach a voluntary agreement. Given the number of
negotiating parties involved, not to mention the stakes of the
negotiations, it is more likely than not that the negotiations
will not result in any agreement. In such a case, would the
prevailing rates at the time of enactment control? No one
knows.
Finally, as noted in extensive debate at the mark-up, most
Members want to see a majority of any savings in this bill
passed on to consumers in the form of lower prices. While the
manager's amendment attempts to address this issue, it is
entirely unclear how that provision will actually work. There
is no visible enforcement mechanism in the provision. While
courts tend to frown on implied causes of action, it is safe to
assume that trial attorneys will attempt to take advantage of
this pass-through language as a means to sue merchants large
and small. At the end of the day, we might see judges setting
retail prices if this bill were enacted.
In conclusion, we believe that the merchants have raised
some significant concerns about the fairness of the current
interchange system. On the other hand, we recognize that this
bill is not the only proposed solution--or perhaps even the
right solution--to the problem.
The legislative process is long. This bill will not become
law this Congress. We hope that future Congresses will examine
the issues outlined above. In the meantime, the parties would
be well served to sit down and negotiate a solution that does
not involve Congressional intervention.
Lamar Smith.
Bob Goodlatte.
Darrell Issa.
Dissenting Views
The debate in Committee indicated that this legislation
would not necessarily have a positive impact on the consumer,
small businesses or the retail industry at large.
As Members debated the bill, it became apparent to many
that, whatever its stated intent, the result is a legislative
intervention into how two industries should divide up a one or
two percentage points of revenue, an unseemly exercise for a
policymaking body in what is still a free market. One person's
cost is another person's revenue, and it is understandable that
those that have chosen low margin business models, such as
gasoline retailers and grocers, would like to lower their
costs. The legislation, however, would also provide relief to
high margin businesses of all sizes. Even an attempt to
rationalize the legislation, such my small business amendment,
did not address the fact that many small businesses have no
problem passing these costs on to consumers. The fact that a
branded gasoline retailer is limited by an oil company to a
margin of between 7 and 13 cents per gallon regardless of the
price of gasoline, and the fact that the oil company generally
negotiates its own deal with the credit card processor or
acquiring bank, further limiting cost recovery by the retailer,
does not to me provide a basis for government intervention in
the setting of the share of costs that retailers pay for the
considerable benefits of accepting electronic transactions. As
I noted in my opening statement, just the shifting of the
credit risk alone is a substantial benefit.
Regarding specific issue of anti-trust policy, one of the
primary flaws in the legislation is the antitrust exemption it
grants to two entire industries to allow for anticompetitive
negotiations. I do not believe there is a problem in the
payment card acceptance marketplace. But, if there were, the
solution would be to rectify it either through enforcement of
existing law or reviewing the adequacy of existing competition
law. This legislation, however, apparently represents the views
that two wrongs do, in fact, make a right. Instead of fixing
any underlying competition problem, the bill simply waives
competition law requirements so that merchants can negotiate in
abusive and collusive ways. This exemption is bad for
competition and bad for consumers.
This Committee did not fully explore the ramifications of
the antitrust immunity included in H.R. 5546. At no time for
the record did we hear from independent antitrust experts, the
Administration, or any other disinterested expert on
competition law. This, by itself, should have been a ``red
flag'' to my colleagues that something was amiss with the bill.
However, interested Members of the Committee need not look far
for relevant discussions of the harms that H.R. 5546 will cause
to consumers and competition.
One reliable source for information about antitrust
proposals is the Antitrust Modernization Commission (``AMC'')
which was legislation drafted by the former Chairman in his
first term. This august body was created by Congress to provide
expert guidance as to whether our antitrust laws should be
modernized. The AMC was made up of bipartisan antitrust
experts, and it provided worthwhile analysis of the state of
our antitrust laws and whether such laws needed revision. The
AMC issued unanimous findings relating to granting exemptions
from the antitrust laws. The following quotes leave little
doubt about the wisdom of granting wholesale antitrust
exemptions, as is proposed in H.R. 5546:
``While the beneficiaries of an exemption likely
appreciate reduced market pressures, consumers (as well
as non-exempted firms) and the U.S. economy generally
bear the harm from the loss of competitive forces.''
Antitrust Modernization Report and Recommendations at
335.
``Typically, antitrust exemptions create economic
benefits that flow to small, concentrated interest
groups, while the costs of the exemption are widely
dispersed, usually passed on to a large population of
consumers through higher prices, reduced output, lower
quality, and reduced innovation. The concentrated
benefits provide incentives for interested parties to
seek immunities from Congress, but the diffuse costs
often have sufficiently minimal impact on individual
consumers that they are unlikely to oppose the creation
of immunities. Congress therefore is unlikely to hear
from those who would be adversely affected by a
proposed antitrust exemption.'' Id. at 335.
``Antitrust exemptions can harm the U.S. economy and,
in the long run, reduce the competitiveness of the
industries that have sought antitrust exemptions.'' Id.
at 335.
``Statutory exemptions from the antitrust laws
undermine, rather than upgrade, the competitiveness and
efficiency of the U.S. economy.'' Id. at 335.
``Statutory immunities from the antitrust laws should
be disfavored. They should be granted rarely, and only
where, and for so long as, a clear case has been made
that the conduct in question would subject the actors
to antitrust liability and is necessary to satisfy a
specific societal goal that trumps the benefit of a
free market to consumers and the U.S. economy in
general.'' (emphasis in original) Id. at 335.
The AMC is not alone in its general disdain for antitrust
immunities. Indeed, prior to the Committee's consideration of
H.R. 5546, the Chairman of the Committee received a letter from
four bipartisan antitrust experts. The authors were two former
Chairmen of the Federal Trade Commission (one a Democrat and
one a Republican) and two former Assistant Attorneys General of
the Antitrust Division within the Department of Justice (again,
one a Democrat and one a Republican). In the letter, the
authors describe the harms of H.R. 5546, including the
potential harm to consumers.
The Ranking Member of this Committee also asked for input
on H.R. 5546 from the Department of Justice and the Federal
Trade Commission. In their respective letters, both agencies
expressed significant concerns about H.R. 5546. For example,
the Department of Justice expressed ``serious concerns'' about
the legislation because the proposed antitrust exemption could
harm consumers in a variety of ways. The Federal Trade
Commission reiterated the concerns raised by the AMC in
connection with congressionally granted immunities from
antitrust laws.
It would seem that antitrust exemptions are generally not a
preferred option for Congress, even if there is market
dysfunction. They are especially unwise, however, when other
remedies are available as would seem to be the case with
merchants and payment card networks. Merchant representatives
have stated repeatedly that the large payment card networks
will not negotiate with them about the terms and rules for
access to those networks. This is not my understanding. In
fact, the Committee received emphatic testimony to the
contrary. (One merchant witness even admitted that he had never
even tried to negotiate with either Visa or MasterCard.) I
recognize that others appear to disagree with my view on this.
Regardless of one's views of the current marketplace, however,
one does not need to support H.R. 5546 to give merchants a
``voice'' with the networks. Specifically, the merchants are
currently in mediation with each of the networks as part of the
continuing class action litigation against the networks and
banks. Either the mediation or the litigation may provide
merchants the relief they seek. Perhaps this Committee should
review how that process unfolds before proceeding further with
H.R. 5546.
In sum, it appears that there are significant concerns
about antitrust immunities from a variety of experts in the
field. Equally telling, I am unaware of any antitrust experts
that are willing to defend the antitrust exemption in H.R. 5546
on its merits. (It may be worth noting that the Committee did
hear from W. Stephen Cannon, who represented the merchant
lobbyists supporting H.R. 5546. He did not specifically address
the policy behind the antitrust immunity granted in H.R. 5546,
nor did he address the apparent discrepancy in his support for
H.R. 5546 compared with the unanimous findings of the AMC
quoted above. Mr. Cannon was a commissioner.) Furthermore, it
turns out that the legislation is not even necessary to get
both sides into the same room for discussions. I urge my
colleagues to oppose this unnecessary and harmful bill.
F. James Sensenbrenner, Jr.