Credit Card Interchange Fees : Debunking Six Myths

The Visa and MasterCard credit card networks require the banks (known as acquiring banks) to pay a portion of all purchases made with a credit card to the bank that issued the card. This fee, known as the interchange fee, is ultimately passed on by the acquiring bank to the merchants that accept credit cards. Because interchange fees are set collectively by all of the banks that issue Visa and MasterCard cards, and because they constitute about 75% of the fee paid by retailers to accept cards, they have long been suspect under the antitrust laws. In recent years, debate over interchange fees has intensified as competition authorities in other countries have begun regulating these fees, and merchants in the United States have filed a series of class actions challenging them under the antitrust laws. The cases have been consolidated by the Panel on Multi-District Litigation for pre-trial purposes. This article responds to six myths that have been advanced about credit card interchange fees that have the common theme of suggesting either that these fees raise no competitive concerns or that any valid concern could be easily remedied through cost-based regulation or merchant surcharging. This article demonstrates that these myths are untrue and that interchange fees raise serious competitive concerns for which there is no quick fix