CFPB chief balks at rising interchange

Rohit Chopra, director of the Consumer Financial Protection Bureau, had some harsh words for Visa and Mastercard during a recent interview on CNBC's Closing Bell. And he hinted that federal regulators may take a closer look at the card brands' pricing strategies.

"I don't think we have a competitive payment system in this country," Chopra said. The CFPB chief said he is especially troubled by reports that many interchange rates will increase next month. "At a time of inflation that just seems like adding insult to injury for many small businesses," he added.

Pressed on whether there is anything the government can do to intervene, Chopra said, "When prices rise in tandem by dominant firms, that always raises red flags for regulators."

Interchange has long been a hot-button issue among card-accepting businesses. Most recently, the Merchants Payments Coalition, a merchant advocacy group, launched an ad campaign urging Congress and policymakers to take steps to rein in card-acceptance fees.

Rohit's comments followed reports that the card giants were planning to increase many of the interchange rates paid by large merchants, while slashing by as such as 10 percent interchange paid by many small businesses. CMSPI, a consultancy for merchants, estimated the combined changes will cost retailers $475 million in additional interchange fees annually.

Fees to increase by as much as 45 basis points

Visa and Mastercard revise interchange tables twice a year—in April and October. But both companies shelved planned rate hikes in 2020 and 2021, citing business disruptions brought on by the COVID-19 pandemic.

Most of the changes expected next month are in line with those originally planned in 2020 and 2021, CMSPI said in a report, and primarily effect consumer credit card transactions. For example, Visa will increase interchange on consumer card-not-present transactions by nine to 10 basis points, according to an analysis by the consultancy. Interchange on non-qualified (downgraded) Visa consumer credit card transactions will jump by 45 basis points.

Mastercard will increase most in-store and online consumer credit card payments by seven to 13 points, CMSPI found. Interchange for most online card payments will jump between six and 15 basis points. Mastercard will also increase interchange rates small and midsize grocery stores pay by 12 to 20 basis points. And it is planning to hike interchange on all airline premium credit cards by 25 basis points.

Along with changes to interchange, Mastercard is making changes to its digital enablement fee, CMSPI said. The fee, which applies to all online transactions, will be assessed on all authorizations rather than on payments, which had been the case. Mastercard is also doubling the fee from one to two basis points and imposing a minimum charge of 2 cents.

CMSPI said in its analysis that merchants selling small-dollar items online will be hardest hit by the new digital enablement fee scheme. "For example, a $20 t-shirt ordered online will see a 10x increase in this fee, and a $5 hamburger ordered through an app will see a 40x increase," the consultancy wrote.

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