Republicans pile on Visa, Mastercard over interchange

Time is running out for the Credit Card Competition Act to pass in the current Congress, but that doesn't mean change isn't in the cards. At a hearing today before the Senate Judiciary Committee lawmakers from both sides of the aisle said the current model of setting interchange and routing card transactions is unsustainable. And some of the harshest criticism came from Republicans.

"Swipe fees are inflation multipliers," insisted Senator Roger Marshall, R-Kan. Sen. Marshall, along with Senator Dick Durbin, D-Ill., authored the Credit Card Competition Act, which would require large issuers of Visa and Mastercard credit cards (those with $100 billion, or more, in assets) to program those cards to support processing over at least two networks, only one of which could be owned by Mastercard or Visa. Sen. Marshall, in a statement to the committee, noted that just 30 financial institutions would be affected by the legislation.

Sen. Durbin characterized the legislation as a means to "break the Visa-Mastercard stranglehold" on merchants.

"I generally like competition, except where there are monopoSenator Lindsey GrahamBabel Fish, R-S.C., the committee's ranking Republican, told a panel of witnesses that included William Sheedy, senior advisor to Visa CEO Ryan McInerney, and Linda Kirkpatrick, Mastercard president for the Americas. "You're having a hard time convincing me that these fees are set to benefit consumers."

It's time to 'work this out'

"Visa and Mastercard and the retailers need to sit down and work this out," Senator John Kennedy, R-La., insisted. "Because if you don't Congress is going to do something."

Sen. Kennedy added, "You need to come up with something that is fair to consumers and retailers and helps Visa and Mastercard" retain profitable businesses. "If you don't, you could end up looking like the Post Office," he warned.

Sen. Kennedy's admonition was echoed by many other members of the committee.

"You are killing the small retailers," said Senator Peter Welch, D-Vt., said.

"We have a problem here, and the Durbin-Marshall bill is not the answer," said Senator Thom Tillis, R-N.C. "This bill is not going to pass in this Congress," Sen. Tillis added, noting there are few working days left in the current session of Congress.

But a similar bill could be in the offing if things don't change, Tillis warned. "Visa and Mastercard have to figure this out, because I can guarantee you that any solution that comes from Congress will not be a good one."

Marshall insists bill is workable

Sen. Marshall rejected suggestions that the legislation he and Sen. Durbin crafted is unworkable. In a statement to the committee he pointed out that JPMorgan Chase recently added a competing processing network to Visa and Mastercard credit cards it issues in France.

In March the megabank disclosed that it had joined Cartes Bancaires CB, France's leading payment network, which offers lower interchange rates than those set by Visa and Mastercard, as interchange in the EU is capped at 0.3 percent for credit cards.

Separately, Senators Durbin and Welch pointed out that the EU cap has not stopped Visa and Mastercard from turning profits in Europe.

Here in the United States, various debit card networks, as well as Discover, which is in the process of being acquired by Capital One Financial Corporation., have been suggested as potential alternatives to the Visa and Mastercard networks for processing merchant card transactions.

"There are dozens of competing networks out there" that could be processing Visa and Mastercard transactions, Sen. Marshall said.

Specter of DOJ debit suit looms

Several senators and witnesses brought up the civil lawsuit filed by the Department of Justice in September against Visa that levels similar complaints about the card giant's debit card processing.

That lawsuit, which grew out of a three-year investigation, alleges Visa illegally maintains a monopoly over debit network markets, using its dominance to thwart the growth of existing competitors and preventing other companies from developing new and innovative alternatives.

Visa is alleged to exert leverage based upon large numbers of transactions that must run over its payment rails, or risk higher fees – what the DOJ has referred to as "disloyalty penalties" that force merchants and their acquiring banks to keep transactions off smaller competing networks offering lower per-transaction fees.

Visa also has been accused of inducing would be competitors to become partners instead of entering the debit market as competitors by offering generous monetary incentives and threatening punitive additional fees if they decline to partner.

"We're seeing much of this same type of behavior on the credit side," Doug Kantor, general counsel at the National Association of Convenience Stores, told the panel.

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