Statement of Rebecca Reid
Executive Director, Americans for Consumer
Education and Competition
Senate Judiciary Committee
July 19, 2006
Credit Card Interchange Rates: Anti Trust Issues?

Chairman Specter, Ranking Member Leahy, members of the Committee, my name is Rebecca Reid and I am Executive Director of Americans for Consumer Education and Competition (ACEC), an organization that promotes financial literacy for our youth and advocates for consumers rights. We communicate with more than 25,000 consumers on issues such as theft ID, money management and credit card rewards. Thank you for the opportunity to submit this statement.

As the Senate Judiciary Committee explores the issue of the interchange fee, we ask that you keep at the forefront of your considerations, the impact of regulation on the consumer.

The committee is already aware of the fallout of interchange fee regulation in Australia and how, as the Wall Street Journal recently phrased it, "consumers were the losers, which is what inevitably occurs when governments intervene in markets that aren't broken." The reasons most often cited for consumers getting the short stick upon regulation of the interchange fee have to do with merchant behavior. A 2005 independent analysis of the Australia outcome concluded: "Taken collectively the direct impacts of the interchange reforms on consumers have been wholly negative. They are paying more in annual fees for credit cards and loyalty schemes, some retailers are now surcharging for credit card usage and they are not seeing lower prices at the checkout."

Surcharging, often unnoticed by consumers, is a method practiced by some merchants to recoup fees they pay for the ability to provide electronic payment options to consumers. The irony is that many merchants who offer electronic transactions frequently draw a higher volume of customers into their stores and benefit from increased amounts on sales. Yet they want to pass that cost onto the very consumer they market their goods and services to through a check out fee or surcharge. Australia merchants said that if the interchange fee there was regulated, they would lower their prices and not surcharge. We are hearing the same from many merchants in the U.S. and it’s critical that we do not repeat recent history in Australia.

Some states have "No Surcharge" laws on the books, while others do not. Only Minnesota allows surcharging up to five percent of the purchase price. Most credit card companies ban merchants from adding an extra fee onto the price of purchase for those consumers choosing to pay with a credit card, however, ensuring that merchants don’t penalize consumers proves difficult. On top of that, a study conducted by the Association of Motor Vehicle Administrators shows check processing costs more than the processing of electronic transactions. Card users should not be singled out from those who pay with cash or write a check.

An overwhelming majority of consumers, 89 percent, believe imposing check out fees on those who pay with plastic is an unfair practice and would not purchase goods from merchants who penalize debit and credit card users, according to a 2006 national survey by Americans for Consumer Education and Competition. Our poll, a national survey of 1,000 American adults, indicated that 62% of American adults would abandon their purchase if charged a check out fee for using a debit or credit card. Eighty-two percent of those who reported being surcharged were charged check out fees in the past year. And, 62% percent of those who have been surcharged said getting hit with the fee gave them a negative impression of the retailer.

There should be no question as to the intention of some big merchants when it comes to imposing check out fees on consumers. Mallory Duncan, a senior vice president and the general counsel at the National Retail Federation, was quoted in an article on the interchange fee in American Banker last year saying, "merchants have always wanted the right to surcharge."

Myriad surveys indicate consumers prefer to use their debit card these days over cash for purposes of convenience and security. Consumer behavior shows an unstoppable trend toward the preference of electronic payment. We are buying items through the Internet, paying bills, banking online and buying goods at our local stores with the swipe of a card. Consumers who pay with plastic shouldn’t be discriminated against for preferring an easy and safe choice of payment.

As the committee hears testimony today from panelists, please hear the voice of the consumer - here in the United States and across the world in Australia. Merchants should not be allowed to surcharge.

Rebecca Reid
Executive Director
Americans for Consumer Education & Competition
Office: 410-267-1128. 410-267-1129
Cell: 410-212-3843
FAX: 410-267-9716