News

Congress asked to step into interchange wars

May 8, 2006

WASHINGTON - Congress was asked last week to consider joining the ongoing interchange-fee battle between U.S. merchants and Visa and MasterCard.

"Fees are escalating at a remarkable rate, to the amount of some $40 billion a year,"

Sen. Christopher Dodd (D-Connecticut) said during the Senate Banking Committee's vote on a regulatory relief bill for banks and credit unions. 

Dodd said governments in as many as 20 other countries are currently regulating interchange fees or studying regulation. And though he would not try to include a study provision in the pending bank bill, he did move to have Congress develop an interchange fees study.

Two weeks ago a top Federal Reserve official fended off suggestions that the Unites States' central bank should intervene in the interchange wars. The Fed said it does not have the authority to regulate interchange fees. (Read also, Fed won't set interchange fees.)

The debate over regulation comes as the legal battles between merchants and the two card companies continues to escalate.Visa and MasterCard - both controlled by the nation's big banks - hold about 85 percent of the market for credit and debit card interchange fees.

The interchange breakdown

Through a typical transaction, about 80 percent of the fee goes to the card issuer, about 16 percent goes to merchant, and the remainder, about 4 percent, goes to Visa or MasterCard and other parties involved in the transaction.

MasterCard, which is owned by 1,400 banks, also announced last week more details surrounding its initial public offering - an offering that was delayed in February after the company's chief executive was recovering from an illness. (Read also, MasterCard's IPO disrupted.)

MasterCard plans to raise as much as $2.6 billion in the offering, most of which will be used to buy back shares from the banks. (Read also, MasterCard IPO could raise up to $2.61 billion.) JPMorgan Chase, Citibank, Bank of America and HSBC own about 30 percent of MasterCard, according to Securities and Exchange Commission filings.

Read also, Interchange wars: Merchants tug networks for change.