(May 20, 2009) The U.S. House of Representatives on Wednesday overwhelmingly passed a sweeping credit card reform bill that leaves out retailer-backed regulation of interchange. The bill, which the Senate sent to the House Tuesday, includes a Congressional interchange study and could open the door to controls on gift cards.
The House earlier this month passed its version of the issuer-focused card reforms, H.R. 627, without any interchange provisions. At the urging of merchant groups, however, the Senate briefly considered amending the bill so that it would clarify federal law to make it easier for retailers to discount prices for cash, checks and debit card payments, with credit card sales being charged the base price (Digital Transactions News, May 14). The amendment didn't make it into the version that emerged from the Senate on Tuesday on a 90-5 vote, much to the relief of card issuers and bank card networks. The House adopted the Senate bill and approved it on a 361-64 vote.
But interchange opponents plan to carry on their fight. "We're disappointed that the cash discount amendment wasn't included because it would have been a significant help for consumers at a time when they need to stretch every dollar as far as possible," a spokesperson for the Washington, D.C.-based National Retail Federation tells Digital Transactions News by e-mail. "It didn't make it onto this bill, but there's a lot of momentum behind it and we hope to see it attached to some other piece of legislation."
What is in the legislation is an order for the Government Accountability Office to study interchange, the controversial transaction fee set by the bank card networks, charged to the merchant acquirer and paid to the card issuer. Acquirers typically pass the cost on to merchants, who in the past year have found lawmakers receptive to their argument that the fees have gotten too high and they have little control over them. The GAO is the non-partisan investigative arm of Congress. Findings from its studies frequently make their way into legislation, so the interchange issue is likely to come up again by year's end or in 2010. The interchange study is supposed to be done within six months of the card law's enactment.
The bill directs the GAO to investigate numerous aspects of interchange, including disclosures to merchants and consumers, how federal regulators oversee such fees, and whether interchange revenues support card issuers' advertising and rewards programs. The GAO also is to probe "the consequences of the undisclosed nature of interchange fees on merchants and consumers with regard to prices charged for goods and services," the bill says.
Title IV of the bill contains provisions that address gift card and gift certificate fees, expiration dates, and disclosures that have the prepaid card industry worried. Some fear the bill could clear the way for more regulation of retailer-issued gift cards and network-branded prepaid cards issued by banks. "There's a lot of hand-wringing and a lot of unknowns," says researcher Tim Sloane of Mercator Advisory Group Inc.
One provision would amend the Electronic Funds Transfer Act in a way that might permit states to pass gift card regulations stricter than those in the Federal Reserve's Regulation E, which implements the EFTA, according to Sloane. While the implications aren't yet clear, prepaid card issuers worry that the language could undermine the principle of federal pre-emption of state laws when a business relationship is between a consumer and a national bank. "It puts a new crack in the wall," says Sloane, director of the Prepaid Advisory Service at Maynard, Mass.-based Mercator.
President Obama had pushed Congress to give him a card bill he could sign by Memorial Day. The final bill does include an unrelated but controversial amendment added by the Senate—allowing people to carry loaded guns in national parks.
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