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110th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     110-913

======================================================================



 
                    CREDIT CARD FAIR FEE ACT OF 2008

                                _______
                                

October 3, 2008.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Conyers, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                             together with

                 ADDITIONAL VIEWS AND DISSENTING VIEWS

                        [To accompany H.R. 5546]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on the Judiciary, to whom was referred the bill 
(H.R. 5546) to amend the antitrust laws to ensure competitive 
market-based rates and terms for merchants' access to 
electronic payment systems, having considered the same, reports 
favorably thereon with an amendment and recommends that the 
bill as amended do pass.

                                CONTENTS

                                                                   Page
The Amendment....................................................     2
Purpose and Summary..............................................     4
Background and Need for the Legislation..........................     5
Hearings.........................................................    10
Committee Consideration..........................................    11
Committee Votes..................................................    11
Committee Oversight Findings.....................................    13
New Budget Authority and Tax Expenditures........................    13
Congressional Budget Office Cost Estimate........................    13
Performance Goals and Objectives.................................    16
Constitutional Authority Statement...............................    16
Advisory on Earmarks.............................................    16
Section-by-Section Analysis......................................    16
Additional Views.................................................    19
Dissenting Views.................................................    27

                             The Amendment

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Credit Card Fair Fee Act of 2008''.

SEC. 2. LIMITED ANTITRUST IMMUNITY FOR THE NEGOTIATION AND 
                    DETERMINATION OF RATES AND TERMS FOR ACCESS TO 
                    COVERED ELECTRONIC PAYMENT SYSTEMS.

  (a) Definitions.--For purposes of this Act:
          (1) ``Access agreement'' means an agreement giving a merchant 
        permission to access a covered electronic payment system to 
        accept credit cards and/or debit cards from consumers for 
        payment for goods and services as well as to receive payment 
        for such goods and services, conditioned solely upon the 
        merchant complying with the rates and terms specified in the 
        agreement.
          (2) ``Acquirer'' means a financial institution that provides 
        services allowing merchants to access an electronic payment 
        system to accept credit cards and/or debit cards for payment, 
        but does not include independent third party processors that 
        may act as the acquirer's agent in processing general-purpose 
        credit or debit card transactions.
          (3) ``Antitrust Division'' means the Antitrust Division of 
        the U.S. Department of Justice.
          (4) ``Antitrust laws'' has the meaning given it in subsection 
        (a) of the first section of the Clayton Act (15 U.S.C. 12(a)), 
        except that such term includes section 5 of the Federal Trade 
        Commission Act (15 U.S.C. 45) to the extent such section 5 
        applies to unfair methods of competition as well as any similar 
        State law.
          (5) ``Credit card'' means any general-purpose card or other 
        device issued or approved for use by a financial institution 
        allowing the cardholder to obtain goods or services on credit 
        on terms specified by that financial institution.
          (6) ``Covered electronic payment system'' means an electronic 
        payment system that has been used for at least 20 percent of 
        the combined dollar value of U.S. credit card, signature-based 
        debit card, and PIN-based debit card payments processed in the 
        applicable calendar year immediately preceding the year in 
        which the conduct in question occurs.
          (7) ``Debit card'' means any general-purpose card or other 
        device issued or approved for use by a financial institution 
        for use in debiting a cardholder's account for the purpose of 
        that cardholder obtaining goods or services, whether 
        authorization is signature-based or PIN-based.
          (8) ``Electronic payment system'' means the proprietary 
        services and infrastructure that route information and data to 
        facilitate transaction authorization, clearance, and settlement 
        that merchants must access in order to accept a specific brand 
        of general-purpose credit cards and/or debit cards as payment 
        for goods and services.
          (9) ``Financial institution'' has the same meaning as in 
        section 603(t) of the Fair Credit Reporting Act.
          (10) ``Issuer'' means a financial institution that issues 
        credit cards and/or debit cards or approves the use of other 
        devices for use in an electronic payment system, but does not 
        include independent third party processors that may act as the 
        issuer's agent in processing general-purpose credit card or 
        debit card transactions.
          (11) ``Market power'' means the ability profitably to raise 
        prices above those that would be charged in a perfectly 
        competitive market.
          (12) ``Merchant'' means any person who accepts credit cards 
        and/or debit cards in payment for goods or services that they 
        provide.
          (13) ``Negotiating party'' means 1 or more providers of a 
        covered electronic payment system or 1 or more merchants who 
        have access to or who are seeking access to that covered 
        electronic payment system, as the case may be, and who are in 
        the process of negotiating or who have executed a voluntarily 
        negotiated access agreement that is still in effect.
          (14) ``Person'' has the meaning given it in subsection (a) of 
        the first section of the Clayton Act (15 U.S.C. 12(a)).
          (15) ``Provider'' means any person who owns, operates, 
        controls, serves as an issuer for, or serves as an acquirer for 
        a covered electronic payment system.
          (16) ``State'' has the meaning given it in section 4G(2) of 
        the Clayton Act (15 U.S.C. 15g(2)).
          (17) ``Terms'' means all rules applicable either to providers 
        of a single covered electronic payment system or to merchants, 
        and that are required in order to provide or access that 
        covered electronic payment system for processing credit card 
        and/or debit card transactions.
          (18) ``Voluntarily negotiated access agreement'' means an 
        executed agreement voluntarily negotiated between 1 or more 
        providers of a single covered electronic payment system and 1 
        or more merchants that sets the rates and terms pursuant to 
        which the 1 or more merchants can access that covered 
        electronic payment system to accept credit cards and/or debit 
        cards from consumers for payment of goods and services, and 
        receive payment for such goods and services.
  (b) Limited Antitrust Immunity for Negotiation of Access Rates and 
Terms to Covered Electronic Payment Systems.--(1) Except as provided in 
paragraph (2) and notwithstanding any provision of the antitrust laws, 
in negotiating access rates and terms any providers of a single covered 
electronic payment system and any merchants may jointly negotiate and 
agree upon the rates and terms for access to the covered electronic 
payment system, including through the use of common agents that 
represent either providers of a single covered electronic payment 
system or merchants on a non-exclusive basis. Any providers of a single 
covered electronic payment system also may jointly determine the 
proportionate division among themselves of paid access fees.
  (2) Notwithstanding any other provision of this Act, the immunity 
otherwise applicable under paragraph (1) shall not apply to a provider 
of a single covered electronic payment system, or to a merchant, during 
any period in which such provider, or such merchant, is engaged in any 
unlawful boycott.
  (c) Nondiscrimination.--For any given covered electronic payment 
system, the rates and terms of a voluntarily negotiated access 
agreement reached under the authority of this section shall be the same 
for all merchants, regardless of merchant category or volume of 
transactions (either in number or dollar value) generated. For any 
given covered electronic payment system, the rates and terms of a 
voluntarily negotiated access agreement reached under the authority of 
this section shall be the same for all participating providers, 
regardless of provider category or volume of transactions (either in 
number or dollar value) generated.
  (d) Facilitation of Negotiation.--
          (1) Schedule.--Within one month following enactment of this 
        Act, the negotiating parties shall file with the Antitrust 
        Division a schedule for negotiations. If the negotiating 
        parties do not file such a schedule within one month from the 
        date of enactment, the Antitrust Division shall issue such a 
        schedule and inform the negotiating parties of the schedule. In 
        either case, the Antitrust Division shall make the schedule 
        available to all negotiating parties.
          (2) Initial disclosure.--Within one month following enactment 
        of this Act, the persons described in this subsection shall 
        make the initial disclosures described in paragraphs (3), (4), 
        and (5) to facilitate negotiations under the limited antitrust 
        immunity provided for by this section.
          (3) Issuers, acquirers, and owners.--Any person who is 1 of 
        the 10 largest issuers for a covered electronic payment system 
        in terms of number of cards issued, any person who is 1 of the 
        10 largest acquirers for a covered electronic payment system in 
        terms of number of merchants served, and any person who 
        operates or controls a covered electronic payment system shall 
        produce to the Antitrust Division and to all negotiating 
        parties--
                  (A) an itemized list of the costs necessary to 
                provide the covered electronic payment system that were 
                incurred by the person during the most recent full 
                calendar year before the initiation of the negotiation; 
                and
                  (B) any access agreement between that person and 1 or 
                more merchants with regard to that covered electronic 
                payment system.
          (4) Merchants.--Any person who is 1 of the 10 largest 
        merchants using the covered electronic payment system, 
        determined based on dollar amount of transactions made with the 
        covered electronic payment system, shall produce to the 
        Antitrust Division and to all negotiating parties--
                  (A) an itemized list of the costs necessary to access 
                an electronic payment system during the most recent 
                full calendar year prior to the initiation of the 
                proceeding; and
                  (B) any access agreement between that person and 1 or 
                more providers with regard to that covered electronic 
                payment system.
          (5) Disagreement.--Any disagreement regarding whether a 
        person is required to make an initial disclosure under this 
        clause, or the contents of such a disclosure, shall be resolved 
        by the Antitrust Division.
          (6) Attendance of antitrust division.--A representative of 
        the Antitrust Division shall attend all negotiation sessions 
        conducted under the authority of this section.
  (e) Transparency of Voluntarily Negotiated Access Agreements.--
          (1) Voluntarily negotiated access agreements between 
        negotiating parties.--A voluntarily negotiated access agreement 
        may be executed at any time between 1 or more providers of a 
        covered electronic payment system and 1 or more merchants.
          (2) Filing agreements with the antitrust division.--The 
        negotiating parties shall jointly file with the Antitrust 
        Division a clear intelligible copy of--
                  (A) any voluntarily negotiated access agreement that 
                affects any market in the United States or elsewhere;
                  (B) the various components of the interchange fee;
                  (C) a description of how access fees that merchants 
                pay are allocated among financial institutions and how 
                they are spent;
                  (D) whether a variation in fees exists among card 
                types;
                  (E) any documentation relating to a voluntarily 
                negotiated access agreement evidencing any 
                consideration being given or any marketing or 
                promotional agreements between the negotiating parties;
                  (F) a comparison of interchange rates in current use 
                in the 10 foreign countries having the highest volume 
                of credit card transactions with the interchange rates 
                charged in the United States under such agreement; and
                  (G) any amendments to that voluntarily negotiated 
                access agreement or documentation.
          (3) Timing and availability of filings.--The negotiating 
        parties to any voluntarily negotiated access agreement executed 
        after the date of enactment of this Act shall jointly file the 
        voluntarily negotiated access agreement, and any documentation 
        or amendments described in paragraph (2), with the Antitrust 
        Division not later than 30 days after the date of execution of 
        the voluntarily negotiated access agreement or amendment or 
        after the creation of the documentation. The Antitrust Division 
        shall make publicly available any voluntarily negotiated access 
        agreement, amendment, or accompanying documentation filed under 
        this paragraph.
  (f) Report to Congress by the Antitrust Division.--Within seven 
months after the date of enactment of this Act, the Antitrust Division 
shall transmit to the House Committee on the Judiciary and the Senate 
Committee on the Judiciary a report on the negotiations conducted under 
the authority of this section during the first six months after the 
date of enactment and, if a voluntarily negotiated agreement is 
reached, whether such access rates and terms will have an adverse 
effect on competition and how such rates compare with access rates and 
terms in current use in other countries. Such report shall contain a 
chronology of the negotiations, an assessment of whether the parties 
have negotiated in good faith, an assessment of the quality of the data 
provided by the parties in their initial disclosures, a description of 
any voluntarily negotiated agreements reached during the negotiations, 
and any recommendations of the Antitrust Division concerning how 
Congress should respond to the conduct of the negotiations.
  (g) Effect on Pending Lawsuits.--Nothing in this section shall affect 
liability in any action pending on the date of enactment of this 
section.

SEC. 3. OPT-OUT.

  Nothing in this Act shall limit the ability of acquirers or issuers 
that are regulated by the National Credit Union Administration or that, 
together with affiliates, have assets of less than $1,000,000,000, to 
opt out of negotiations under this Act.

SEC. 4. CARDHOLDER SAVINGS.

   Any agreements reached pursuant to the authority provided in section 
2 shall provide that--
          (1) when any fees that a merchant is charged for access to a 
        covered electronic payment system are reduced pursuant to any 
        such agreement, the merchant shall pass the benefits of any 
        such reduction in fees on to its customers or employees; and
          (2) when any fees that a financial institution collects for 
        access to a covered electronic payment system are increased 
        pursuant to any such agreement, the financial institution shall 
        pass the benefits of any such increase in fees on to its 
        customers or employees.

SEC. 5. EFFECTIVE DATE.

  This Act shall take effect on the date of the enactment of this Act.

                          Purpose and Summary

    The purpose of H.R. 5546, the ``Credit Card Fair Fee Act of 
2008,'' is to correct an imbalance that currently exists 
between credit card companies on one side and merchants and 
consumers on the other. The bill does this by giving a limited 
antitrust exemption to merchants so they can negotiate with the 
credit card companies for interchange fee rates and rules. H.R. 
5546 also helps to ensure that consumers receive the benefits 
of the exemption by mandating that any savings resulting from 
the bill be passed on by whoever receives the benefit, whether 
it be the merchants or the credit card companies.

                Background and Need for the Legislation

    The credit card industry is a highly profitable business, 
with more than 691 million credit cards in circulation in the 
United States, accounting for $1.8 trillion of consumer 
spending.\1\ The credit card companies' annual earnings are in 
the $40 billion range, and about half of all Americans 
reportedly carry a balance on their high interest rate credit 
cards. In addition, every time any credit card is used a 
merchant pays an ``interchange fee.''\2\
---------------------------------------------------------------------------
    \1\U.S. Gov't Accountability Office, Credit Cards, Increased 
Complexity in Rates and Fees Heightens Need for More Effective 
Disclosures to Consumers 9 (Sept. 2006); see also The Secret History of 
the Credit Card (PBS television broadcast Nov. 23, 2004), http://
www.pbs.org/wgbh/pages/frontline/shows/credit/view/.
    \2\Id; see also Brian K. Bucks, Arthur B. Kennickell, and Kevin B. 
Moore, 2004: Recent Changes in U.S. Family Finances: Evidence from the 
2001 and 2004 Survey of Consumer Finances, The Fed. Reserve Bd. (2004) 
available at http://www.federalreserve.gov/pubs/oss/oss2/2004/
bull0206.pdf; Carolyn B. Maloney, Forever in Debt: Anti-Competitive 
Credit Card Practices and Their Impact on the Economy (2008), available 
at http://maloney.house.gov/documents/financial/creditcards/
20080730CreditCardFINALPub.pdf.
---------------------------------------------------------------------------
    The Judiciary Committee's Task Force on Competition Policy 
and Antitrust Laws has held two hearings on this issue. At the 
first hearing, conducted in July of last year, concerns were 
expressed that the large credit card companies could charge 
excessive interchange fees because of market power; that 
retailers have little ability to negotiate the fees; and that 
there is a lack of transparency with regard to how the credit 
card companies calculate their fees.\3\ After the hearing, 
Chairman John Conyers Jr. (D-MI) and Representative Chris 
Cannon (R-UT) introduced H.R. 5546, the ``Credit Card Fair Fee 
Act of 2008.''\4\ The second hearing, conducted in May of this 
year, focused on the legislation, which created a limited 
antitrust immunity for negotiating voluntary agreements and, if 
necessary, participating in market-based proceedings before a 
panel of Electronic Payment System Judges to determine the 
appropriate interchange fee.
---------------------------------------------------------------------------
    \3\Credit Card Interchange Fees: Hearing Before the Task Force on 
Competition Policy and Antitrust Laws of the H. Comm. on the Judiciary, 
110th Cong. (2007).
    \4\Original cosponsors of H.R. 5546 include Reps. Boozman (R-AR), 
Carney (D-PA), Delahunt (D-MA), Gohmert (R- TX), Hall (R-TX), Lofgren 
(D-CA), Peterson (R-PA), Platts (R-PA), Shuster (R-PA), Sullivan (R-
OK), Weiner (D-NY), Welch (D-VT), and Wilson (R-SC). There are 
currently 44 cosponsors total.
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                      CREDIT CARD INTERCHANGE FEES

What is an Interchange Fee?
    Credit card interchange fees are fees charged when a 
consumer uses any payment card at a retailer. The fees cover 
the cost of processing the transaction, fraud protection, 
billing statements, payment system innovations, and other 
expenses. The interchange fee serves as payment from the 
merchant's bank--the acquirer--to the cardholder's bank--the 
issuer--for the underwriting, funding, and billing of the 
merchant's customer.
    The fee is a percentage established by the payment card 
company, such as Visa or MasterCard, and is the most 
significant portion of a ``merchant's discount rate.'' This 
discount rate is the subject of an agreement between the 
merchant and his or her bank, and represents the total amount 
deducted by the merchant's bank from each card transaction. 
Ultimately, the merchant discount rate is divided three ways 
among the consumer's bank, the merchant's bank, and the credit 
card company. Most of these financial institutions are members 
of Visa, MasterCard, or both.
    In the United States, the interchange fee averages 
approximately 1.75% and the merchant discount rate averages 
2.20% of card transactions. In 2007, interchange fees totaled 
approximately $42 billion.\5\
---------------------------------------------------------------------------
    \5\Press Release, Merchants Payment Coalition, Merchants Say that 
Visa Fee Cut is Less Than Meets the Eye (Jun. 27, 2008) (on file with 
The Merchants Payments Coalition (MPC), Unfair Credit Card Fees), 
http://www.unfaircreditcardfees.com/site/page/about.
---------------------------------------------------------------------------
    In recent years, the merchant discount rate and interchange 
fee have become highly controversial, and the subject of 
regulatory and antitrust investigations as well as several 
lawsuits. Merchants and consumer groups insist that interchange 
fees in the United States are not in line with economies of 
scale, such as decreasing technology costs, as well as similar 
lower fees charged in other countries. They maintain that 
rising interchange fees are resulting in higher prices, lower 
profits, and a burden on the consumer.
    The payment card industry, however, warns that a 
substantially greater harm to consumers will result if 
interchange fees are artificially lowered. They claim that if 
the fees are too low, consumers will ultimately suffer, because 
payment card companies will offer fewer rewards, and will 
charge higher annual fees and interest rates.\6\
---------------------------------------------------------------------------
    \6\The payment card industry asserts interchange fees are already 
naturally constrained, because if the fees are too high, the merchants 
will not accept payment cards and will opt for competing forms of 
payment, such as cash and checks, or new forms of payment, including 
PayPal, Debitman, and Google Checkout.
---------------------------------------------------------------------------
How It Works
    The electronic card transaction is completed in several 
virtually simultaneous steps:

        Step 1: Customer presents the card to the Merchant for 
        payment.

        Step 2: Merchant's bank--the Acquirer--sends an 
        authorization request to the payment card company whose 
        name appears on the card, generally Visa or 
        MasterCard.\7\
---------------------------------------------------------------------------
    \7\The other major competitor is American Express, which, unlike 
Visa and MasterCard, functions as a closed-loop network. Known as a 
``three-party'' system, it includes cardholders, merchants and a single 
financial institution that offers proprietary network services. Thus, 
American Express issues the cards, signs up merchants to accept the 
cards, and performs the functions necessary to complete the 
transactions. In this case, the merchant discount is paid in full to 
the payment card company. The ``four-party'' system includes 
cardholders, merchants, card issuing banks, and merchant acquiring 
banks, using the services of a multiparty network such as Visa or 
MasterCard.

        Step 3: Visa/MasterCard matches the Acquirer with the 
        Cardholder's bank--the Issuer--and charges the Issuer 
---------------------------------------------------------------------------
        an Association Assessment Fee.

        Step 4: Issuer authorizes the transaction, debits 
        Customer's account, credits Acquirer, and charges 
        Acquirer an Interchange Fee.

        Step 5: Acquirer places payment in Merchant's account 
        and charges a Processing Fee.

        Step 6: Merchant pays the Acquirer a Discount Rate--
        which is a percentage of the total transaction--that 
        ultimately covers the Processing Fee, Interchange Fee, 
        and Association Assessment Fee.\8\
---------------------------------------------------------------------------
    \8\For example, if a customer makes a $100 purchase at a retailer, 
the merchant will pay on average $2.20 of that purchase to his bank--
the acquirer. Of that amount, the acquirer receives a ``processing 
fee'' of approximately $.35 and pays an ``interchange fee'' of 
approximately $1.75 to the customer's bank--the issuer. The issuer in 
turn pays an ``association assessment fee'' of around $0.095 to Visa/
MasterCard.

    In order to accept credit cards as a method of payment, a 
merchant must first establish a merchant account by forming a 
relationship with an acquiring bank.\9\ This relationship 
enables the merchant to process transactions and obtain payment 
from credit card purchases. The merchant discount rate, paid by 
the retailer each time a transaction occurs, is based on sales 
volume, type of payment card, type and size of accepting 
merchant (e.g. online, in-store, phone order), and risk. The 
rate is determined by multiplying the total credit card volume 
by a percentage charged by the bank. Most rates fall between 
one and 3 percent, and are based on the rate requirements of a 
credit card company, such as Visa or MasterCard.\10\
---------------------------------------------------------------------------
    \9\In some cases, the merchant instead forms a relationship with a 
``transaction service,'' which matches the merchant and the bank 
offering an optimal merchant discount rate.
    \10\Merchant Discount. Free Encyclopedia of Ecommerce, http://
ecommerce.hostip.info/pages/722/Merchant-Discount.html (last visited 
July 16, 2007).
---------------------------------------------------------------------------
Market Power and Efforts to Address the Problem with Antitrust Laws
    The issue of market power has been sufficiently borne out 
in the litigation between the merchants and the card companies 
over the years. For example, in 2003, the Second Circuit 
affirmed a district court's decision that Visa and MasterCard 
have market power.\11\ Specific evidence supporting this 
affirmation was that approximately 85 percent of the general 
purpose cards issued in the United States are Visa and 
MasterCard. Based upon these and other findings, including that 
the market is very concentrated and there are high barriers to 
entry, the Second Circuit affirmed the trial court ruling that 
Visa and MasterCard ``jointly and separately, have power within 
the market for network services.''\12\
---------------------------------------------------------------------------
    \11\U.S. v. Visa U.S.A., Inc., 344 F. 3d 229, 239-40 (2d Cir. 
2003).
    \12\Id. This case marked a departure from earlier suits challenging 
Visa's practices. A 1980 lawsuit, for example, challenged interchange 
on grounds that Visa's setting of the fees constituted unlawful 
horizontal price-fixing. The court rejected it on both per se and rule 
of reason analyses grounds. The appellate court also rejected the 
challenge and the Supreme Court declined to hear the case. Nat'l 
Bancard Corp. v. Visa U.S.A., Inc., 596 F. Supp. 1231 (S.D. Fla. Sept. 
20, 1984), aff'd, 779 F.2d 592 (11th Cir. 1986), cert denied, 479 U.S. 
923 (1986).
---------------------------------------------------------------------------
    Liability has been established for antitrust violations by 
the credit card industry in recent years relating to the 
exclusionary rules the industry imposed and the tying of debit 
and credit cards.\13\ The only recent case that has been 
resolved was dismissed because it was insufficiently plead,\14\ 
and in March of this year, the Ninth Circuit affirmed the 
dismissal in Kendall v. Visa USA, Inc.\15\
---------------------------------------------------------------------------
    \13\See, e.g., In re Visa Check/Mastermoney Antitrust Litigation, 
2003 WL 1712568 (E.D.N.Y. April 1, 2003).
    \14\Kendall v. Visa USA, Inc., 2005 WL 2216941 (N.D. Cal. July 25, 
2005).
    \15\Kendall v. Visa USA, Inc., 518 F.3d 1042 (9th Cir. 2008).
---------------------------------------------------------------------------
    One case that is currently pending in district court may 
provide some resolution on the question of whether the card 
companies violate the antitrust laws in the setting of 
interchange fees. This class action, filed in New York in 2005 
by a group of nationwide retailers,\16\ alleges that Visa, 
MasterCard and U.S. banks engage in collusive practices to fix 
credit card interchange fees. The plaintiffs seek damages and 
injunctive relief ``alleging that Visa, MasterCard and their 
member banks have colluded to establish and fix the 
`interchange fees' and other fees charged to merchants for 
transactions processed over their credit card networks.''\17\ 
According to Labaton Sucharow LLP, serving on the Executive 
Committee of this class action, ``defendants exploit their 
credit card monopoly by forcing retailers to pay these 
increasing fees, they forbid them from passing on the cost to 
customers, and they forbid them from bypassing the credit card 
networks and processing the transactions through agreements 
with member banks.''\18\ The plaintiffs have filed a 
consolidated complaint, and as of 2008, the case is still in 
discovery. A motion to dismiss by the defendants was recently 
denied.\19\
---------------------------------------------------------------------------
    \16\In re Payment Card Interchange Fee & Merchant Discount 
Antitrust Litigation, No. 05-MD-1720, 2008 WL 2428213 (E.D.N.Y. May 14, 
2008).
    \17\Labaton Sucharow LLP, In re Payment Card Interchange Fee and 
Merchant Discount Antitrust Litigation, http://www.labaton.com/en/
cases/In-re-Payment-Card-Interchange-Fee-and-Merchant-Discount-
Antitrust-Litigation.cfm (last visited July 14, 2008).
    \18\Id.
    \19\In re Payment Card Interchange Fee & Merchant Discount 
Antitrust Litigation, No. 05-MD-1720, 2008 WL 2428213 (E.D.N.Y. May 14, 
2008).
---------------------------------------------------------------------------
    Further, on July 1, 2008, the Department of Justice closed 
an antitrust investigation into Visa Inc.'s restriction of 
particular PIN debit transactions after the credit card company 
repealed the regulation. The rule ``required merchants to treat 
Visa-branded debit cards differently when used as a PIN-debit 
card (and processed via non-Visa networks) from the same cards 
when used as signature debit cards and processed on the Visa 
network.''\20\ It was alleged that this was restricting PIN 
debit transactions, specifically those of small value ($25 and 
below) and transactions over the Internet, and also may have 
reduced competition between Visa and PIN debit networks. Thomas 
Barnett, Assistant Attorney General, Antitrust Division, said 
that although this investigation is closed, ``the Department 
remains prepared to investigate allegations of anticompetitive 
conduct in this important industry.''\21\
---------------------------------------------------------------------------
    \20\Press Release, U.S. Dep't of Justice, ``Visa Inc. Rescinds 
Debit Card Rule as a Result of DOJ Dep't of Justice Antitrust 
Investigation (July 1, 2008) (on file with author), http://
www.usdoj.gov/atr/public/press_releases/2008/234577.htm.
    \21\Id.
---------------------------------------------------------------------------

                   MERCHANT AND CONSUMER PERSPECTIVES

Competition and Antitrust Issues
    According to groups representing merchant interests, banks 
and their agents (Visa and MasterCard) collectively set 
interchange fees. They argue that as a result of this activity, 
the interchange fee is likely the same regardless of which bank 
issued the card used to make a purchase, or which bank signed 
up the merchant making the sale. MasterCard sets interchange 
fees on behalf of its approximately 20,000 member banks; Visa 
USA also sets interchange fees on behalf of its approximately 
14,000 member banks. As MasterCard allows its member banks to 
also issue Visa cards, and Visa USA likewise allows its members 
to issue MasterCard cards, many of Visa's 14,000 members are 
also members of the MasterCard network. Merchants assert that 
this behavior is anticompetitive and may constitute price 
fixing.
Higher Interchange Fees Benefit Banks
    Another argument made by merchant groups is that card 
companies increase fees to encourage banks to issue their 
cards. The higher the interchange fees charged by Visa or 
MasterCard, the more money will flow to their member banks, 
thus making Visa and MasterCard more attractive compared to 
other systems. Further, special premium payment cards like 
Visa's Signature card or MasterCard's World card charge even 
higher interchange rates to offset offering additional rewards. 
Merchant groups assert that the result is that member banks 
have every incentive collectively to ensure that the card 
system sets high interchange fees.
    Merchants also explain that because they must take the 
interchange fee into account when pricing products, consumers 
who pay by means other than payment cards end up subsidizing 
unrelated expenses such as marketing efforts by the card-
issuing banks.\22\ Yet only the payment card users, and not 
customers who pay the same price using cash, earn benefits 
through points, miles, cash-back features, and concierge 
services.
---------------------------------------------------------------------------
    \22\Id.
---------------------------------------------------------------------------
    Given the size of the United States's economy and growing 
membership of Visa and MasterCard, merchant groups say that in 
a competitive market, scale and scope economies should result 
in declining interchange fees. Instead, they say the fees have 
doubled over the last 10 years. According to merchant group 
estimates, only 13 percent of the interchange fee covers 
processing costs, while 44 percent pays for rewards programs 
including marketing, advertising, network servicing, profits, 
and other expenses. They see this as the reason interchange 
fees have been on the rise, despite decreasing costs of 
technology. Other nations, including New Zealand, Australia, 
Poland, and those of the European Union, have already reduced, 
eliminated, or taken steps to limit interchange fees.\23\
---------------------------------------------------------------------------
    \23\Terri Bradford and Fumiko Hayashi, Developments in Interchange 
Fees in the United States and Abroad, Payment System Research Briefing. 
(Federal Reserve Bank of Kansas City, Kansas City, MO), Apr. 2008, 
available at http://www.kc.frb.org/Econres/PSR/Briefings/PSR-
BriefingApr08.pdf.
---------------------------------------------------------------------------
Impact on Merchant Viability
    From the merchant perspective, as card payments become an 
increasing percentage of consumer transactions--replacing 
checks and cash--they become an even greater concern to all 
retailers. The Food Marketing Institute (FMI) says that in the 
past 10 years, many supermarkets have seen an increase in costs 
associated with credit and debit card fees of 700 percent and 
the merchant discount rate is ``exceeding the 1 percent profit 
margin of a typical grocery store.''\24\ Merchants maintain 
that the fee particularly impacts low margin businesses, where 
the charges have become the second highest expense, below only 
labor costs, with annual increases exceeding health care and 
energy costs.\25\
---------------------------------------------------------------------------
    \24\The Food Marketing Institute (FMI), Hidden Credit/Debit Card 
Interchange Fees 1, available at http://www.fmi.org/gr/interchange/
FMIonepager.pdf.
    \25\Id.
---------------------------------------------------------------------------
    With the price of gas exceeding $4 a gallon and interchange 
fees still on the rise, gas station owners in particular have 
found their viability under serious threat. Last year, 
convenience stores paid nearly $7.6 billion in credit card 
fees, or more than double the industry profit of about $3.4 
billion that year.\26\ As the Associated Press reports, in one 
case a small gas station owner yielded $60 profit in 1 month on 
gasoline sales, but paid nearly $500 that same month in 
interchange fees.
---------------------------------------------------------------------------
    \26\Tom Breen, Credit Card Fees: Some Gas Stations Say ``No More,'' 
Associated Press, June 18, 2008, available at http://ap.google.com/
article/ALeqM5hOFuBRfjgTqd4WKI1nbvn X3VUOPAD91CKD800.
---------------------------------------------------------------------------
    Although MasterCard has placed a cap on the fees for 
gasoline purchases of $50 or greater, and Visa recently 
announced that it would adjust its interchange rate schedule in 
response to gas prices, merchants insist that the change is not 
enough--or may even have the reverse impact.\27\ Visa, for 
example, lowered the interchange fees applied to all gas 
station purchases to 1.15 percent (from 1.5 percent) of the 
transaction price plus 25 cents flat fee. Closer analysis, 
however, shows that the result will be that consumers ``making 
high dollar amount transactions [using Visa Signature Preferred 
Card] will pay less, but consumers with small transactions 
[using a regular rewards card] will pay more.''\28\ Thus, most 
gas station owners--those that operate in an area where 
customers use the standard cards--will fail to benefit.
---------------------------------------------------------------------------
    \27\Id.
    \28\Posting of Adam Levitin to http://www.creditslips.org/
creditslips/2008/07/interchange-and.html#more (July 1, 2008, 23:22 
EST). Credit Slips: A Discussion on Credit and Bankruptcy.
---------------------------------------------------------------------------
    The Wall Street Journal explains that higher gas prices 
``compound the fees that station operators must pay to credit-
card companies, because the fees are calculated as a percentage 
of sales.''\29\ Large energy companies as well as many one-
store owners are exiting the gas-retailing business. Exxon 
Mobil announced in June that ``it plans to sell its 2,220 
stations in the U.S.; other oil companies already have shed 
most of theirs.''\30\ For example, the Boston Globe wrote that, 
``[d]ozens of gas stations in Massachusetts have stopped 
selling gas or shut down, and hundreds more are expected to 
follow suit because rising costs coupled with crippling credit 
card fees and fewer customers make it impossible for them to 
afford the roughly $40,000 it costs to refill their underground 
tanks.''\31\ Further, ABC News reports that ``to combat the 
hefty fees that card companies are charging gas stations, many 
owners have passed the costs on to the consumer by charging 
more per gallon if the payment is made with plastic instead of 
cash.''\32\
---------------------------------------------------------------------------
    \29\Ana Campoy, Gas Stations Hit Skids, Wall St. J., July 7, 2008, 
at B12, available at http://s.wsj.net/article/
SB121538602450331005.html?mod=autos_feature--articles.
    \30\Id.
    \31\Michael Levenson, Gas Prices Drive Many Stations Out of 
Business, The Boston Globe, June 19, 2008, available at http://
www.boston.com/news/local/articles/2008/06/19/
gas_prices_drive_many_stations_out_of_business/.
    \32\Bianna Golodryga and Lee Ferran, Credit Card Fees Up Gas 
Prices, ABC News, July 9, 2008, available at http://abcnews.go.com/GMA/
story?id=5338007&page;=1.
---------------------------------------------------------------------------

                                Hearings

    The Committee on the Judiciary Task Force on Competition 
Policy and Antitrust Laws held two hearings on this issue. 
First, the Task Force held a hearing on July 19, 2007, titled 
``Credit Card Interchange Fees.'' Testimony was received from 
Steve Smith, President and CEO, K-VA-T Food Stores, Inc.; John 
Buhrmaster, President, First National Bank of Scotia, New York; 
Edmund Mierzwinski, Consumer Program Director, U.S. PIRG; 
Timothy Muris, Of Counsel, O'Melveny & Myers; and Mallory 
Duncan, Senior Vice President and General Counsel, National 
Retail Federation. Second, the Committee held a legislative 
hearing on H.R. 5546, the ``Credit Card Fair Fee Act of 2008,'' 
on May 15, 2008. Testimony was received from Tom Robinson, CEO, 
Robinson Oil Corporation; Joshua Floum, General Counsel and 
Corporate Secretary, Visa, Inc.; Joshua Peirez, Chief Payment 
System Integrity Officer, MasterCard Worldwide; John Blum, Vice 
President of Operations, Chartway Federal Credit Union; Steve 
Cannon, Chairman, Constantine Cannon, LLP; and Edward 
Mierzwinski, Consumer Program Director, U.S. Public Interest 
Research Group.

                        Committee Consideration

    On July 16, 2008, the Committee met in open session and 
ordered the bill, H.R. 5546, favorably reported with an 
amendment, by a rollcall vote of 19 to 16, a quorum being 
present.

                            Committee Votes

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
following rollcall votes occurred during the Committee's 
consideration of H.R. 5546.
    1. An amendment by Mr. Sherman to change the definition of 
``merchant'' so that it would mean any person who accepts 
credit cards or debit cards in payment for goods or services 
that they provide and employs fewer than 500 employees for each 
working day during each of the 20 or more calendar workweeks in 
the current or preceding calendar year. Defeated 9 to 22.

                                                 ROLLCALL NO. 1
----------------------------------------------------------------------------------------------------------------
                                                                       Ayes            Nays           Present
----------------------------------------------------------------------------------------------------------------
Mr. Conyers, Jr., Chairman......................................                              X
Mr. Berman......................................................                              X
Mr. Boucher.....................................................
Mr. Nadler......................................................                              X
Mr. Scott.......................................................                              X
Mr. Watt........................................................              X
Ms. Lofgren.....................................................                              X
Ms. Jackson Lee.................................................                              X
Ms. Waters......................................................
Mr. Delahunt....................................................
Mr. Wexler......................................................
Ms. Sanchez.....................................................                              X
Mr. Cohen.......................................................
Mr. Johnson.....................................................                              X
Ms. Sutton......................................................
Mr. Gutierrez...................................................
Mr. Sherman.....................................................              X
Ms. Baldwin.....................................................
Mr. Weiner......................................................                              X
Mr. Schiff......................................................
Mr. Davis.......................................................              X
Ms. Wasserman Schultz...........................................              X
Mr. Ellison.....................................................              X
Mr. Smith (Texas)...............................................                              X
Mr. Sensenbrenner, Jr...........................................              X
Mr. Coble.......................................................                              X
Mr. Gallegly....................................................                              X
Mr. Goodlatte...................................................                              X
Mr. Chabot......................................................              X
Mr. Lungren.....................................................                              X
Mr. Cannon......................................................                              X
Mr. Keller......................................................                              X
Mr. Issa........................................................                              X
Mr. Pence.......................................................                              X
Mr. Forbes......................................................                              X
Mr. King........................................................                              X
Mr. Feeney......................................................              X
Mr. Franks......................................................              X
Mr. Gohmert.....................................................                              X
Mr. Jordan......................................................                              X
                                                                 -----------------------------------------------
    Total.......................................................              9              22
----------------------------------------------------------------------------------------------------------------

    2. Motion to report H.R. 5546 favorably. Passed 19 to 16.

                                                 ROLLCALL NO. 2
----------------------------------------------------------------------------------------------------------------
                                                                       Ayes            Nays           Present
----------------------------------------------------------------------------------------------------------------
Mr. Conyers, Jr., Chairman......................................              X
Mr. Berman......................................................              X
Mr. Boucher.....................................................                              X
Mr. Nadler......................................................              X
Mr. Scott.......................................................              X
Mr. Watt........................................................                              X
Ms. Lofgren.....................................................              X
Ms. Jackson Lee.................................................              X
Ms. Waters......................................................
Mr. Delahunt....................................................
Mr. Wexler......................................................                              X
Ms. Sanchez.....................................................              X
Mr. Cohen.......................................................
Mr. Johnson.....................................................                              X
Ms. Sutton......................................................                              X
Mr. Gutierrez...................................................
Mr. Sherman.....................................................
Ms. Baldwin.....................................................              X
Mr. Weiner......................................................              X
Mr. Schiff......................................................                              X
Mr. Davis.......................................................                              X
Ms. Wasserman Schultz...........................................                              X
Mr. Ellison.....................................................              X
Mr. Smith (Texas)...............................................                              X
Mr. Sensenbrenner, Jr...........................................                              X
Mr. Coble.......................................................              X
Mr. Gallegly....................................................                              X
Mr. Goodlatte...................................................              X
Mr. Chabot......................................................                              X
Mr. Lungren.....................................................              X
Mr. Cannon......................................................              X
Mr. Keller......................................................              X
Mr. Issa........................................................              X
Mr. Pence.......................................................              X
Mr. Forbes......................................................                              X
Mr. King........................................................              X
Mr. Feeney......................................................                              X
Mr. Franks......................................................                              X
Mr. Gohmert.....................................................              X
Mr. Jordan......................................................                              X
                                                                 -----------------------------------------------
    Total.......................................................             19              16
----------------------------------------------------------------------------------------------------------------

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee advises that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of rule XIII of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority or increased tax 
expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 5546, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 31, 2008.
Hon. John Conyers, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 5546, the Credit 
Card Fair Fee Act of 2008.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie, 
who can be reached at 226-2860.
            Sincerely,
                                           Peter R. Orszag,
                                                  Director.

Enclosure

cc:
        Honorable Lamar S. Smith.
        Ranking Member
H.R. 5546--Credit Card Fair Fee Act of 2008.

                                SUMMARY

    H.R. 5546 would provide limited immunity from antitrust 
laws to merchants and financial services organizations that 
negotiate an agreement setting the terms for using electronic 
payment systems to process transactions using credit cards. A 
representative of the Department of Justice (DOJ) would be 
required to attend all negotiation sessions. The department 
would be required to make any agreements that result from the 
negotiations available to the public and to prepare an analysis 
and report of the results of the negotiations.
    Based on information from DOJ, CBO estimates that 
implementing H.R. 5546 would cost about $6 million in 2009 and 
$33 million over the 2009-2013 period, assuming appropriation 
of the necessary amounts. Enacting H.R. 5546 would not affect 
direct spending or revenues.
    H.R. 5546 contains an intergovernmental mandate as defined 
in the Unfunded Mandates Reform Act (UMRA) because it would 
preempt State antitrust laws. CBO estimates that because the 
preemption would only limit the application of State law, the 
mandate would impose no costs on State, local, or tribal 
governments.
    H.R. 5546 would impose private-sector mandates, as defined 
in UMRA, on certain issuers for, acquirers for, and owners and 
operators of covered electronic payment systems as well as 
certain merchants using covered electronic payment systems. The 
bill also would prevent individuals from seeking damages under 
certain antitrust laws for negotiations authorized under the 
bill. CBO expects that the direct costs to comply with those 
mandates would not be significant and would fall below the 
annual threshold established in UMRA for private-sector 
mandates ($136 million in 2008, adjusted annually for 
inflation).

                ESTIMATED COST TO THE FEDERAL GOVERNMENT

    The estimated budgetary impact of H.R. 5546 is shown in the 
following table. The costs of this legislation fall within 
budget function 370 (commerce and housing credit).

                                     By Fiscal Year, in Millions of Dollars
----------------------------------------------------------------------------------------------------------------
                                                2009        2010        2011        2012        2013   2009-2013
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level                      7           6           7           7           7          34

Estimated Outlays                                  6           6           7           7           7          33
----------------------------------------------------------------------------------------------------------------

                           BASIS OF ESTIMATE

    For this estimate, CBO assumes that the bill would be 
enacted near the start of fiscal year 2009 and that spending 
would follow historical patterns for similar activities.
    H.R. 5546 would provide limited immunity from antitrust 
laws to merchants and financial services organizations that 
enter into voluntary negotiations to set terms for using 
electronic systems for clearing credit card transactions. The 
bill would require the Antitrust Division of the Department of 
Justice to collect information about the parties' schedule for 
negotiation and any agreements that would result from such 
negotiations. Further, a representative of the Antitrust 
Division would be required to attend all negotiation sessions.
    Because H.R. 5546 would provide broad authority for 
merchants and providers of electronic payment services to join 
together to negotiate rates and terms for access to a payment 
system, it is unclear how many negotiations may be initiated as 
a result of the bill. For example, a large number of small 
groups may form--that is, gas station owners, businesses with 
fewer than 50 employees, or retail merchants--or a smaller 
number of fairly large groups may form. Based on information 
from DOJ regarding the additional workload in the face of such 
uncertainty, CBO estimates that the agency would require an 
additional 35 staff positions to attend negotiation sessions 
for as many as 500 such groups, monitor the information 
submitted by the participating parties, and meet the bill's 
reporting requirements. CBO estimates that implementing H.R. 
5546 would cost $6 million in 2009 and $33 million over the 
2009-2013 period, assuming appropriation of the necessary 
amounts. The costs would be incurred mostly for salaries and 
benefits, as well as for start-up costs in the first year to 
set up information-collection systems.

        ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS

    H.R. 5546 contains an intergovernmental mandate, but CBO 
estimates that the mandate would impose no costs on State, 
local, or tribal governments. By exempting agreements between 
merchants and credit card companies from State antitrust laws, 
the bill would preempt State law. That preemption would be a 
mandate as defined in UMRA, but the bill would impose no duty 
on States that would result in additional spending.

                 ESTIMATED IMPACT ON THE PRIVATE SECTOR

    H.R. 5546 contains private-sector mandates, as defined in 
UMRA, because the bill would impose requirements on the 10 
largest entities in each of the following categories:

         LFinancial institutions that issue electronic 
        devices such as credit cards and debit cards for use in 
        an electronic payment system, or acquire access to 
        electronic payment systems for merchants to use in 
        accepting credit cards and/or debit cards for payment;

         LOwners and operators of electronic payment 
        systems that have been used for at least 20 percent of 
        the combined dollar value of U.S. credit; and

         LMerchants using certain electronic payment 
        systems.

    Those entities would be required to provide information to 
the Antitrust Division of the DOJ. According to industry 
representatives, the costs to comply with those mandates would 
be small. In addition, the bill would exempt financial services 
organizations and merchants from certain antitrust statutes 
when negotiating access rates using the process authorized by 
the bill. As a result, private entities would be prevented from 
seeking damages under certain antitrust laws from entities 
participating in the negotiation process under the bill. Based 
on information from industry experts, the cost to comply with 
this mandate would likely be small as no such suits have been 
filed or are expected to be filed under current law. Therefore, 
CBO estimates that the aggregate cost of the mandates would 
fall below the annual threshold established in UMRA for 
private-sector mandates ($136 million in 2008, adjusted 
annually for inflation).

                         ESTIMATE PREPARED BY:

Federal Costs: Susan Willie (226-2860)
Impact on State, Local, and Tribal Governments: Elizabeth Cove 
    (225-3220)
Impact on the Private Sector: Jacob Kuipers (226-2940)

                         ESTIMATE APPROVED BY:

Theresa Gullo
Deputy Assistant Director for Budget Analysis

                    Performance Goals and Objectives

    The Committee states that pursuant to clause 3(c)(4) of 
rule XIII of the Rules of the House of Representatives, H.R. 
5545 will provide an antitrust exemption for merchants so they 
can negotiate with credit card companies with market power for 
interchange fee rates.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in article I, section 8, clause 3 of the 
Constitution.

                          Advisory on Earmarks

    In accordance with clause 9 of rule XXI of the Rules of the 
House of Representatives, H.R. 5446 does not contain any 
congressional earmarks, limited tax benefits, or limited tariff 
benefits as defined in clause 9(d), 9(e), or 9(f) of Rule XXI.

                      Section-by-Section Analysis

    The following discussion describes the bill as reported by 
the Committee.
    Sec. 1. Short title. Section 1 sets forth the short title 
of the bill as the ``Credit Card Fair Fee Act of 2008.''
    Sec. 2. Limited Antitrust Immunity for the Negotiation and 
Determination of Rates and Terms for Access to Covered 
Electronic Payment Systems. Section 2(a) defines the following 
terms: ``Access agreement,'' ``Acquirer,'' ``Antitrust 
Division,'' ``Antitrust Laws,'' ``Credit card,'' ``Covered 
electronic payment system,'' ``Debit card,'' ``Electronic 
payment system,'' ``Financial institution,'' ``Issuer,'' 
``Market power,'' ``Merchant,'' ``Negotiating party,'' 
``Person,'' ``Provider,'' ``State,'' ``Terms,'' and ``Voluntary 
negotiated access agreement.''
    Section 2(b) sets forth the limited antitrust immunity for 
negotiation of access rates and terms to covered electronic 
payment systems. The section allows merchants and covered 
electronic payment systems to jointly negotiate and agree upon 
rates and terms for access to the system, including through the 
use of common agents. This section also specifies that the 
immunity does not apply to a provider of an electronic payment 
system, or to a merchant, during any period in which the 
provider or merchant is engaged in any unlawful boycott.
    Section 2(c) provides that the rates and terms of a 
voluntarily negotiated access agreement must be the same for 
all merchants, regardless of merchant category or volume of 
transactions generated, and shall also be the same for all 
providers, regardless of provider category or volume of 
transactions generated.
    Section 2(d) requires the parties, within 1 month after 
enactment of this Act, to file with the Antitrust Division a 
schedule for negotiations. If the parties do not file a 
schedule, the Antitrust Division must issue a schedule. Some 
parties are required to make initial disclosures to facilitate 
negotiations. These disclosures must be made by the ten largest 
issuers for a covered electronic payment system (in terms of 
number of cards issued), the ten largest acquirers (in terms of 
number of merchants served), and a person who operates or 
controls a covered electronic payment system. The disclosures 
must include an itemized list of costs necessary to provide the 
system for the most recent calendar year and any access 
agreement between that person and one or more merchants. The 
disclosures must also be made by the ten largest merchants 
(based on dollar amount of transactions made with the covered 
electronic payment system). The merchants must disclose an 
itemized list of the costs necessary to access the system 
during the most recent calendar year and any access agreement 
between that person and one or more providers of the system. 
The Antitrust Division shall resolve any disagreements as to 
whether a person is required to make an initial disclosure. A 
representative of the Antitrust Division will attend all 
negotiation sessions conducted under subsection (a).
    Section 2(e) requires any parties who reach a voluntarily 
negotiated access agreement to file with the Antitrust Division 
a copy of the agreement; the various components of the 
interchange fee; a description of how access fees that 
merchants pay are allocated among financial institutions and 
how they are spent; whether a variation in fees exists among 
card types; documentation relating to a voluntarily negotiated 
access agreement evidencing any consideration being given or 
any marketing or promotional agreements between the parties; a 
comparison of interchange rates in current use in the 10 
foreign countries having the highest volume of credit card 
transactions with interchange rates charged in the United 
States under such agreement; and any amendments to the 
voluntarily negotiated access agreement or documentation. The 
parties must make this filing within 30 days after the date of 
execution of a voluntarily negotiated access agreement or 
amendment or after the creation of the documentation. The 
Antitrust Division will make this information publicly 
available.
    Section 2(f) requires the Antitrust Division to file a 
report to the House and Senate Judiciary Committees detailing 
the negotiations and, if an agreement is reached, whether such 
access rates and terms will have an adverse effect on 
competition and how such rates compare with access rates and 
terms in current use in other countries. The report must 
contain a chronology of negotiations, an assessment of the 
quality of data provided by the parties in their initial 
disclosures, an assessment of whether the parties negotiated in 
good faith, and recommendations concerning how Congress should 
respond to the conduct of the negotiations.
    Section 2(g) provides that section 2 may not affect 
liability in any action pending on the date of enactment of 
this section.
    Sec. 3. Opt-Out. Section 3 allows acquirers or issuers that 
are regulated by the National Credit Union Administration or 
that, together with affiliates, have assets of less than 
$1,000,000,000, to opt out of negotiations under the Act.
    Sec. 4. Cardholder Savings. Section 4 provides that any 
agreements reached under Section 2(c) shall ensure that any 
savings or benefits received as a result of this bill, whether 
it be by merchants or financial institutions, shall be passed 
on to the customers or employees.
    Sec. 5. Effective Date. Section 5 provides that the Act 
shall take effect on the date of enactment.
                            Additional Views

    The mark-up of H.R. 5546, the ``Credit Card Fair Fee Act of 
2008'' was unusual. The bill was reported favorably out of 
House Judiciary Committee by a vote of 19 ayes to 16 nays. That 
is not strange. What was peculiar was that ten Democrats and 
nine Republicans voted for the measure and eight Democrats and 
eight Republicans voted against it. While such results may not 
be uncommon in other committees, they are all but unheard of on 
the House Judiciary Committee.
    The Committee's fractured vote reflects the complicated 
nature of the interchange debate. Every Member has constituents 
that strongly favor and oppose this legislation. That is to be 
expected when both MasterCard and Visa have tens of thousands 
of issuing banks and millions of accepting merchants. The 
debate has been clouded further by the contrasting, and, at 
times, completely contradictory claims made by both merchants 
and banks.
    What became clear during the Committee's four and one-half 
hour consideration of the measure is that many Members, 
including those that voted against the bill, believe that there 
is a problem in the way that interchange rates are set in this 
country. It was equally apparent that most Members, including 
those that supported the legislation, have questions and 
concerns about how it will work in practice.

                               BACKGROUND

    In the last 10 years, America has gone through a radical 
transformation in the way it pays for its goods and services. 
In 1996 almost 80% of all transactions were made with checks or 
cash.\1\ Today, less than half of the purchases are conducted 
in those old ways. By 2010, the Nilson Report, an industry 
newsletter, estimates that consumers will use credit and debit 
cards for over 70% of all their purchases. The growth in the 
use of credit and debit cards has occurred in the old fashioned 
brick and mortar stores, but it has also facilitated a whole 
new brand of commerce. Without credit cards, e-commerce as we 
know it today would not exist.
---------------------------------------------------------------------------
    \1\Robert J. Samuelson, The Cashless Society Has Arrived, Newsweek, 
June 25, 2007 (available at http://www.msnbc.msn.com/id/19263119/site/
newsweek/).
---------------------------------------------------------------------------
    Properly used, credit cards offer many benefits for 
consumers and businesses alike. For consumers, they offer fraud 
protection, payment flexibility, the ability to track purchases 
and rewards miles. For merchants, they offer guaranteed, faster 
payment and the opportunity to expand business through Internet 
and phone sales. Further, some studies have shown that 
consumers who use credit or debit cards at the time of purchase 
are likely to spend more than they would otherwise.
    These benefits come at a price. Visa and MasterCard, the 
two largest credit card networks in the country, impose a 
number of fees on consumers. These include the interest that 
consumers pay on their purchases, as well as late fees and fees 
associated with reward programs. However, consumers pay a 
different fee, called an interchange fee, every time they make 
a purchase with a credit card. The interchange fee, which is 
set by Visa and MasterCard, is actually deducted from the funds 
that a merchant receives on a purchase. So, for example, if a 
consumer buys $100 worth of goods on his Visa card, the 
merchant only receives $98.50 from the issuing bank, with the 
$1.50 constituting the interchange fee.\2\ While the merchant 
pays this cost directly, it is ultimately passed on to 
consumers in the form of higher prices.
---------------------------------------------------------------------------
    \2\Technically, the difference between what the merchant charges 
the consumer for the product and what the merchant receives from the 
issuing bank is called a ``merchant discount fee.'' However, the 
merchant discount fee is largely based on the interchange fees that are 
charged between banks in the course of the transaction.
---------------------------------------------------------------------------
    The Merchants Payment Coalition\3\ feels that the 
interchange fees are unduly high and unchanging, two things 
that they consider to be indicative of Visa and MasterCard's 
anticompetitive practices. Second, they challenged Visa and 
MasterCard's practice of keeping the rules surrounding 
interchange fees secret from the retailers themselves. They 
claimed that the only time that they learn of the contents of 
the interchange rules is when Visa and MasterCard assesses them 
a fee for violating the rules.
---------------------------------------------------------------------------
    \3\The Merchant Payments Coalition members are the Food Marketing 
Institute, National Association of Convenience Stores, National Grocers 
Association, National Retail Federation, National Association of Chain 
Drug Stores, American Petroleum Institute, Retail Industry Leaders 
Association, Petroleum Marketers Association of America, Society of 
Independent Gasoline Marketers of America, National Council of Chain 
Restaurants, National Association of College Store, National 
Association of Truck Stop Operators, International Association of 
Airport Duty Free Stores, National Association of Theater Owners, 
American Beverage Licensees, Bowling Proprietors Association of 
America, National Association of Shell Marketers, Interactive Travel 
Services Association, and the National Restaurant Association, among 
others.
---------------------------------------------------------------------------
    Visa and MasterCard's member banks have formed their own 
coalition, the Electronic Payments Coalition.\4\ They contend 
that interchange fees are necessary to conduct the complicated 
transactions that take place when a consumer uses a credit or 
debit card to purchase a product. The Electronic Payments 
Coalition thinks that retailers are trying to get the benefits 
of credit card payment systems (increased sales, guaranteed 
payment, Internet and telephone sales), without the costs, 
namely interchange fees. Partially as a result of the House 
Judiciary Committee's hearings, both Visa and MasterCard have 
begun publishing all of their rules on their website.
---------------------------------------------------------------------------
    \4\The Electronic Payments Coalition includes Advanta Corporation; 
Alabama Bankers Association; America's Community Bankers; American 
Bankers Association; American Express Company; American Financial 
Services Association; Bank of America; Barclays Bank; Californian 
Bankers Association; Capital One Financial Corporation; Card Services 
For Credit Unions, Inc.; Citi; Colorado Bankers Association; Comdata; 
Consumer Bankers Association; Delaware Bankers Association; Financial 
Services Roundtable; Florida Bankers Association; Georgia Bankers 
Association; Hawaii Bankers Association; Hawaii Financial Services 
Association; HSBC North America; Independent Community Bankers of 
America; Iowa Bankers Association; JPMorgan Chase; Maryland Bankers 
Association; Massachusetts Bankers Association; MasterCard Worldwide; 
Mid-Atlantic Financial Services Coalition; Minnesota Card Coalition; 
Mississippi Bankers Association; Montana Bankers Association; National 
Association of Federal Credit Unions; Nebraska Bankers Association; 
Nevada Bankers Association; New Hampshire Bankers Association; New 
Mexico Bankers Association; New York Bankers Association; North 
Carolina Bankers Association; Ohio Bankers League; Ohio Financial 
Services Association; Oklahoma Bankers Association; Pennsylvania 
Bankers Association; PSCU Financial Services; Puerto Rico Bankers 
Association; South Dakota Bankers Association; Tennessee Bankers 
Association; Texas Bankers Association; U.S. Bank; Vermont Bankers 
Association; Visa USA; Washington Bankers Association; Washington 
Mutual; Wells Fargo; West Virginia Bankers Association; and Wisconsin 
Bankers Association.
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                          THE INTERCHANGE FEE

    One of the principal complaints against Visa and MasterCard 
is that the interchange fees that they set are higher than what 
they would be in a competitive environment. The Association for 
Convenience & Petroleum Retailing (NACS) estimates that its 
members paid credit card fees in the amount of $6.6 billion in 
2006. By comparison, they claim that their members made $4.77 
billion in profit in 2006. Simply put, from NACS' perspective, 
the banks made more on the sale of goods at convenience stores 
than the convenience stores did themselves. The Merchant 
Payment Coalition insists that this is only possible because 
Visa and MasterCard dominate the market for credit card 
transactions, which merchants feel compelled to accept. The 
Merchant Payments Coalition also insists that these fees go to 
pay for the numerous credit card solicitations that people 
receive.
    By contrast the Electronic Payment Coalition insists that 
Visa and MasterCard set their interchange fees in a way that is 
designed to encourage banks to issue their cards and for 
merchants to accept them. They contend that the interchange 
fees must be high enough for issuing banks to take on the risks 
and responsibilities of issuing cards, such as the expenditures 
for marketing and fraud protection. Similarly, the fees they 
set cannot be so high that merchants would not want to accept 
the cards. Simply put, if too few merchants want to accept the 
cards, then consumers will not demand them and the whole system 
collapses. The Electronic Payment Coalition argues that the 
fact that the merchants now feel compelled to accept cards 
because so many consumers have them is a sign that the system 
is working.
    This kind of pricing structure is known as a two-sided 
market.\5\ On one side of the market are consumers, who are 
price sensitive. The evidence seems to be--based on the number 
and variety of credit card offerings, including no-fee cards--
that there is intense competition on the part of issuing banks 
to obtain cardholders. On the other side of the market are the 
merchants, who are somewhat price insensitive. That is, banks 
can raise interchange fees--and the merchant discount fees--and 
most merchants will continue to accept the credit cards.
---------------------------------------------------------------------------
    \5\See, e.g., Benjamin Klein, Andres V. Lerner, Kevin M. Murphy, 
and Lacey L. Plache, Competition in Two-Sided Markets: The Antitrust 
Economics of Payment Card Interchange Fees, Antitrust L.J. 571 (2006).
---------------------------------------------------------------------------
    This kind of cross-subsidization of users is not uncommon 
in two-sided markets. The model that is frequently cited here 
is newspapers, where the merchants that purchase advertising in 
a newspaper subsidize the purchase price of the consumers who 
buy the paper at newsstands. In other words, absent the 
advertisers' dollars, consumers would have to pay significantly 
more for a newspaper. However, in the newspaper context, 
merchants have the option of advertising in either a rival 
newspaper, on the radio, on TV, or over the Internet. That 
competition restrains the amount that newspapers can charge 
merchants for advertisements.
    Within the context of payment systems, both Visa and 
MasterCard charge very different interchange fees on some types 
of merchants than they do on others. These differences may be 
accounted for by the varying demand for credit cards among 
industries. For example, grocery stores, which traditionally 
operated on cash and checks, were slow to adopt credit cards as 
a payment system. Accordingly, the credit card networks and 
issuing banks charged a lower interchange rate for purchases at 
grocery stores as a way to entice those stores to accept the 
cards. Conversely, online merchants could not exist without 
credit cards. As a result, they pay much higher interchange 
fees.\6\
---------------------------------------------------------------------------
    \6\The difference in fees is also explained, in part, because 
online transactions--or so-called ``no card present'' transactions--
present a greater risk of fraud for the issuing bank.
---------------------------------------------------------------------------
    These fees vary by merchant class, size of merchant, 
whether a card is present or not (higher fraud likelihood), and 
types of rewards offered. To use but one narrow example, a 
retailer that has a minimum of 45 million Visa credit card 
transactions totaling a minimum of $2.9 billion (and that meets 
certain other requirements) would be assessed an interchange 
fee of 2.3% + $.10 for an online sale (card not present) with a 
Visa Signature Preferred (highest rewards) card.\7\ That same 
merchant would be assessed 1.65% + $.10 for a Visa Signature 
sale, and 1.43% + $.10 for a traditional rewards or no rewards 
card.
---------------------------------------------------------------------------
    \7\Visa U.S.A. Interchange Reimbursement Fees July 2008 (available 
at http://usa.visa.com/download/merchants/visa-usa-july2008-
interchange-rates.pdf).
---------------------------------------------------------------------------
    If competition in the two-sided market works in the manner 
described by the credit card companies, then, theoretically, 
one would expect their ability to raise prices on merchants to 
be constrained by the merchants' ability to switch to another 
form of payment (either another brand of credit card or cash or 
check). It is an open question, however, whether Visa or 
MasterCard has ever raised its rates so far on a class of 
merchants that it has become unprofitable for it to maintain 
that rate. That is, we do not know whether Visa or MasterCard 
has ever been compelled to lower its rates for a particular 
class of merchants because its higher interchange rates caused 
those merchants to either switch to another brand of credit 
card or to accept only cash or checks.
    Perhaps understandably, Visa and MasterCard have been 
reluctant to discuss the details of how they set their 
interchange rates. Further, while they dispute the merchants' 
claims about how interchange fees are used, Visa and MasterCard 
have not--and they claim cannot--provided even a general 
accounting of how the issuing banks use interchange fees. 
However understandable, this lack of transparency does nothing 
to dispel Members' concerns that merchants' needs are not 
adequately considered in setting the fee.
    What does seem clear from the record before the Committee 
is that, on average, Visa and MasterCard's interchange rates 
bear more than a passing resemblance to each other. They are 
significantly below the interchange fees charged by American 
Express and above the rates charged by Discover. Based on their 
advertising alone, it is clear that both Visa and MasterCard 
intend for their payment systems to replace the use of cash and 
checks in the near future. Given consumers' recent spending 
habits, they may well get their wish.
    Further, the U.S. Government Accountability Office recently 
found that the Treasury's Financial Management Service, which 
handles the majority of the federal government's card 
transactions, had tried--and failed--to negotiate lower 
interchange fees with MasterCard and Visa.\8\ The same report 
found that the U.S. Postal Service had ``some limited success'' 
in negotiations over interchange fees.\9\ Given the size of the 
entities involved, not to mention the backing of the full faith 
and credit of the U.S. Government, it is hard to imagine that 
smaller merchants would enjoy much success in directly 
negotiating interchange fees with MasterCard and Visa.
---------------------------------------------------------------------------
    \8\U.S. Gen. Accountability Office, Credit and Debit Cards: Federal 
Entities Are Taking Actions to Limit Their Interchange Fees, but 
Additional Revenue Collections Cost Savings May Exist 25 (2008).
    \9\Id.
---------------------------------------------------------------------------
    While none of this makes for a clear-cut case of collusion 
between MasterCard and Visa regarding the setting of 
interchange fees, it has raised significant concerns in our 
minds about the fairness of the system. Even if MasterCard and 
Visa's actions were appropriate when they were just getting 
started, as the recent antitrust cases against Microsoft prove, 
the kind of behavior that companies can engage in when they are 
small market players is not necessarily acceptable when their 
market shares grow to almost 80%.

                               LITIGATION

    Individual retailers and retailing associations, including 
members of the Merchants Payments Coalition, have sued 
MasterCard, Visa, and a number of issuing banks under Section 1 
of the Sherman Act\10\ for setting the interchange fee at 
levels higher than what a competitive market would allow. These 
suits have been consolidated in the Federal District Court for 
the Eastern District of New York. Currently, the suits are in 
the early phases of discovery.
---------------------------------------------------------------------------
    \10\15 U.S.C. Sec. 1.
---------------------------------------------------------------------------
    This is but the latest in a series of antitrust suits 
against Visa and MasterCard. Earlier efforts to challenge 
interchange rates on antitrust grounds in U.S. courts have not 
fared well.\11\ However, recent challenges to other credit card 
practices, have been more successful. For example, in the mid-
1990s the Department of Justice successfully sued Visa and 
MasterCard for their rules that prohibited member banks from 
issuing a rival card (such as Discover or American 
Express).\12\ More recently, Visa and MasterCard agreed to pay 
over $3 billion in a settlement with Wal-Mart and other 
retailers for their practice of tying their debit and credit 
card offerings.\13\ Among other things, the settling retailers 
claimed that this tying practice resulted in higher interchange 
fees than they would have incurred in a competitive market.
---------------------------------------------------------------------------
    \11\See, e.g., Nat'l Bancard Corp. (NaBanco) v. Visa U.S.A., Inc., 
596 F. Supp. 1231 (S.D. Fla. 1984), aff'd 779 F.2d 592 (11th Cir. 
1986); and Kendall v. Visa U.S.A., Inc., 2005 WL 2216941 (N.D. Cal. 
2005), aff'd 518 F.3d 1042 (9th Cir. 2008).
    \12\United States v. Visa U.S.A., Inc., 163 F. Supp. 2d 322, 340-42 
(SDNY 2001), aff'd 344 F.3d. 229 (2d Cir. 2003), cert. denied, 543 U.S. 
811 (2004).
    \13\In re Visa Check/Mastermoney Antitrust Litigation, 297 
F.Supp.2d 503, 2004-1 Trade Cases P 74,262 (E.D.N.Y. Dec 19, 2003), 
aff'd sub nom., Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96 
(2d Cir. 2005), cert. denied, Leonardo's Pizza by the Slice, Inc. v. 
Wal-Mart Stores, Inc., 544 U.S. 1044 (2005).
---------------------------------------------------------------------------
    Visa and MasterCard, relying on cases such as NaBanco, are 
confident that they will successfully defend their interchange 
fees in the face of this court challenge. However, as the 
NaBanco court noted, ``VISA is a joint venture-type enterprise 
in which the [interchange fee] acts as an internal control 
mechanism that yields procompetitive efficiencies that its 
members could not create acting alone, and helps create a 
product that its members could not produce singly.''\14\ While 
that statement may have been true at a time when banking laws 
prevented banks from functioning as national entities, it is 
unclear whether the largest Visa and MasterCard issuers, such 
as Bank of America, Citibank, JP MorganChase, and Capital One 
could not create their own issuing networks free of the Visa 
and MasterCard brands.
---------------------------------------------------------------------------
    \14\NaBanco, 779 F.2d at 605 (emphasis added).
---------------------------------------------------------------------------
    That said, Congress should be reluctant to intervene in 
ongoing litigation. However, the relief the merchants are 
seeking in this legislation could not be ordered by any court. 
To the extent that Congress provides a remedy through this, or 
other legislation, it will have to address whether such 
legislation will be the exclusive prospective remedy for the 
merchants. Of course, if a court finds that banks violated the 
antitrust laws in the establishment of interchange fees, then 
the merchants will be entitled to whatever monetary damages the 
court deems appropriate.

                         ISSUES WITH H.R. 5546

    Chairman Conyers introduced H.R. 5546, the ``Credit Card 
Fair Fee Act of 2008,'' on March 6, 2008. As introduced, the 
proposed legislation grants a limited antitrust exemption to 
both the banks and the merchants to negotiate jointly the terms 
and rates that banks charge merchants per consumer transaction. 
If the parties cannot agree voluntarily to such terms and 
conditions, then the parties are subject to an administrative 
procedure before a three-judge panel that will determine the 
rates and terms for a three year period. The three-judge panel 
will be selected and administered by the Department of 
Justice's Antitrust Division and the Federal Trade Commission.
    Criticisms of the bill range from the practical, such as 
how all of the merchants and all of the banks would effectively 
negotiate an interchange fee agreement, to the philosophical, 
such as the Antitrust Modernization Commission's admonition 
that antitrust immunities should be granted rarely. Given that 
this bill would authorize one of the largest antitrust 
exemptions in history, these are areas in which Committee 
oversight could be particularly valuable.
    Many of these criticisms were heard at a hearing in the 
Task Force on Competition Policy and Antitrust Laws on May 15, 
2008, at which the following witnesses testified: Mr. Thomas L. 
Robinson, Vice President of Regulations, National Association 
of Convenience Stores; Mr. Joshua R. Floum, General Counsel and 
Corporate Secretary, Visa Inc.; Mr. Joshua Peirez, Chief 
Payment System Integrity Officer, MasterCard Worldwide; Mr. 
Steve Cannon, Chairman, Constantine Cannon LLP; Mr. John Blum, 
Vice President of Operations, Chartway Federal Credit Union; 
and Mr. Ed Mierzwinski, Consumer Program Director, U.S. Public 
Interest Research Group.
    Following the hearing, on June 2, 2008, Ranking Member 
Smith sent a letter to the Federal Trade Commission and the 
Department of Justice requesting their views on H.R. 5546. The 
DOJ responded on June 23, 2008, with a letter expressing 
reservations about the creation of an antitrust exemption for 
merchants to counter-balance the perceived market power of the 
banks. The Department also suggested that this bill likely 
would not benefit consumers because it would result in the loss 
of airline miles and other card benefits. The Department had 
significant concerns about the three-judge panel, including an 
assertion that it violates the appointments clause of the 
Constitution.
    The FTC responded on June 19, 2008. The FTC observed that 
antitrust exemptions should be disfavored and only granted when 
there is a clear showing of need. However, the Commission did 
not opine that the need had not been demonstrated here. With 
respect to the administrative burden that the bill would place 
on the FTC, the Commission wrote that ``a governmental process 
for setting prices for private transactions is at odds with the 
Commission's mission . . . in promoting open market 
competition.'' The Commission also noted that splitting the 
administrative responsibilities between DOJ and FTC could 
complicate the administration of the three-judge panel.
    Chairman Conyers attempted to address these concerns by 
eliminating the three-judge panel and replacing it with DOJ 
oversight over the negotiations. The manager's amendment also 
provided an opt-out from the negotiations for small banks and 
credit unions and had language that would try to ensure that 
consumers received the benefits of this legislation. In the 
main, these were good changes, but they raise as many questions 
as they answer.
    No one knows how these new oversight and reporting 
requirements will burden DOJ. For example, the bill requires 
that the merchants and banks file a schedule for negotiations 
with the Department's Antitrust Division. If they do not file 
such a schedule, the Antitrust Division is required to 
formulate a schedule and inform the parties. How the Antitrust 
Division will identify all of the parties--including the tens 
of thousands of issuing banks and the millions of merchants 
involved--much less notify them all is uncertain.
    The opt-out provision for small banks and credit unions is 
new, too. No one knows which small banks will take this opt-out 
or how that will affect negotiations between the other parties.
    Similarly, while the bill requires banks and merchants to 
negotiate, it says nothing about what happens if the parties 
cannot reach a voluntary agreement. Given the number of 
negotiating parties involved, not to mention the stakes of the 
negotiations, it is more likely than not that the negotiations 
will not result in any agreement. In such a case, would the 
prevailing rates at the time of enactment control? No one 
knows.
    Finally, as noted in extensive debate at the mark-up, most 
Members want to see a majority of any savings in this bill 
passed on to consumers in the form of lower prices. While the 
manager's amendment attempts to address this issue, it is 
entirely unclear how that provision will actually work. There 
is no visible enforcement mechanism in the provision. While 
courts tend to frown on implied causes of action, it is safe to 
assume that trial attorneys will attempt to take advantage of 
this pass-through language as a means to sue merchants large 
and small. At the end of the day, we might see judges setting 
retail prices if this bill were enacted.
    In conclusion, we believe that the merchants have raised 
some significant concerns about the fairness of the current 
interchange system. On the other hand, we recognize that this 
bill is not the only proposed solution--or perhaps even the 
right solution--to the problem.
    The legislative process is long. This bill will not become 
law this Congress. We hope that future Congresses will examine 
the issues outlined above. In the meantime, the parties would 
be well served to sit down and negotiate a solution that does 
not involve Congressional intervention.

                                   Lamar Smith.
                                   Bob Goodlatte.
                                   Darrell Issa.
                            Dissenting Views

    The debate in Committee indicated that this legislation 
would not necessarily have a positive impact on the consumer, 
small businesses or the retail industry at large.
    As Members debated the bill, it became apparent to many 
that, whatever its stated intent, the result is a legislative 
intervention into how two industries should divide up a one or 
two percentage points of revenue, an unseemly exercise for a 
policymaking body in what is still a free market. One person's 
cost is another person's revenue, and it is understandable that 
those that have chosen low margin business models, such as 
gasoline retailers and grocers, would like to lower their 
costs. The legislation, however, would also provide relief to 
high margin businesses of all sizes. Even an attempt to 
rationalize the legislation, such my small business amendment, 
did not address the fact that many small businesses have no 
problem passing these costs on to consumers. The fact that a 
branded gasoline retailer is limited by an oil company to a 
margin of between 7 and 13 cents per gallon regardless of the 
price of gasoline, and the fact that the oil company generally 
negotiates its own deal with the credit card processor or 
acquiring bank, further limiting cost recovery by the retailer, 
does not to me provide a basis for government intervention in 
the setting of the share of costs that retailers pay for the 
considerable benefits of accepting electronic transactions. As 
I noted in my opening statement, just the shifting of the 
credit risk alone is a substantial benefit.
    Regarding specific issue of anti-trust policy, one of the 
primary flaws in the legislation is the antitrust exemption it 
grants to two entire industries to allow for anticompetitive 
negotiations. I do not believe there is a problem in the 
payment card acceptance marketplace. But, if there were, the 
solution would be to rectify it either through enforcement of 
existing law or reviewing the adequacy of existing competition 
law. This legislation, however, apparently represents the views 
that two wrongs do, in fact, make a right. Instead of fixing 
any underlying competition problem, the bill simply waives 
competition law requirements so that merchants can negotiate in 
abusive and collusive ways. This exemption is bad for 
competition and bad for consumers.
    This Committee did not fully explore the ramifications of 
the antitrust immunity included in H.R. 5546. At no time for 
the record did we hear from independent antitrust experts, the 
Administration, or any other disinterested expert on 
competition law. This, by itself, should have been a ``red 
flag'' to my colleagues that something was amiss with the bill. 
However, interested Members of the Committee need not look far 
for relevant discussions of the harms that H.R. 5546 will cause 
to consumers and competition.
    One reliable source for information about antitrust 
proposals is the Antitrust Modernization Commission (``AMC'') 
which was legislation drafted by the former Chairman in his 
first term. This august body was created by Congress to provide 
expert guidance as to whether our antitrust laws should be 
modernized. The AMC was made up of bipartisan antitrust 
experts, and it provided worthwhile analysis of the state of 
our antitrust laws and whether such laws needed revision. The 
AMC issued unanimous findings relating to granting exemptions 
from the antitrust laws. The following quotes leave little 
doubt about the wisdom of granting wholesale antitrust 
exemptions, as is proposed in H.R. 5546:

        ``While the beneficiaries of an exemption likely 
        appreciate reduced market pressures, consumers (as well 
        as non-exempted firms) and the U.S. economy generally 
        bear the harm from the loss of competitive forces.'' 
        Antitrust Modernization Report and Recommendations at 
        335.

        ``Typically, antitrust exemptions create economic 
        benefits that flow to small, concentrated interest 
        groups, while the costs of the exemption are widely 
        dispersed, usually passed on to a large population of 
        consumers through higher prices, reduced output, lower 
        quality, and reduced innovation. The concentrated 
        benefits provide incentives for interested parties to 
        seek immunities from Congress, but the diffuse costs 
        often have sufficiently minimal impact on individual 
        consumers that they are unlikely to oppose the creation 
        of immunities. Congress therefore is unlikely to hear 
        from those who would be adversely affected by a 
        proposed antitrust exemption.'' Id. at 335.

        ``Antitrust exemptions can harm the U.S. economy and, 
        in the long run, reduce the competitiveness of the 
        industries that have sought antitrust exemptions.'' Id. 
        at 335.

        ``Statutory exemptions from the antitrust laws 
        undermine, rather than upgrade, the competitiveness and 
        efficiency of the U.S. economy.'' Id. at 335.

        ``Statutory immunities from the antitrust laws should 
        be disfavored. They should be granted rarely, and only 
        where, and for so long as, a clear case has been made 
        that the conduct in question would subject the actors 
        to antitrust liability and is necessary to satisfy a 
        specific societal goal that trumps the benefit of a 
        free market to consumers and the U.S. economy in 
        general.'' (emphasis in original) Id. at 335.

    The AMC is not alone in its general disdain for antitrust 
immunities. Indeed, prior to the Committee's consideration of 
H.R. 5546, the Chairman of the Committee received a letter from 
four bipartisan antitrust experts. The authors were two former 
Chairmen of the Federal Trade Commission (one a Democrat and 
one a Republican) and two former Assistant Attorneys General of 
the Antitrust Division within the Department of Justice (again, 
one a Democrat and one a Republican). In the letter, the 
authors describe the harms of H.R. 5546, including the 
potential harm to consumers.
    The Ranking Member of this Committee also asked for input 
on H.R. 5546 from the Department of Justice and the Federal 
Trade Commission. In their respective letters, both agencies 
expressed significant concerns about H.R. 5546. For example, 
the Department of Justice expressed ``serious concerns'' about 
the legislation because the proposed antitrust exemption could 
harm consumers in a variety of ways. The Federal Trade 
Commission reiterated the concerns raised by the AMC in 
connection with congressionally granted immunities from 
antitrust laws.
    It would seem that antitrust exemptions are generally not a 
preferred option for Congress, even if there is market 
dysfunction. They are especially unwise, however, when other 
remedies are available as would seem to be the case with 
merchants and payment card networks. Merchant representatives 
have stated repeatedly that the large payment card networks 
will not negotiate with them about the terms and rules for 
access to those networks. This is not my understanding. In 
fact, the Committee received emphatic testimony to the 
contrary. (One merchant witness even admitted that he had never 
even tried to negotiate with either Visa or MasterCard.) I 
recognize that others appear to disagree with my view on this. 
Regardless of one's views of the current marketplace, however, 
one does not need to support H.R. 5546 to give merchants a 
``voice'' with the networks. Specifically, the merchants are 
currently in mediation with each of the networks as part of the 
continuing class action litigation against the networks and 
banks. Either the mediation or the litigation may provide 
merchants the relief they seek. Perhaps this Committee should 
review how that process unfolds before proceeding further with 
H.R. 5546.
    In sum, it appears that there are significant concerns 
about antitrust immunities from a variety of experts in the 
field. Equally telling, I am unaware of any antitrust experts 
that are willing to defend the antitrust exemption in H.R. 5546 
on its merits. (It may be worth noting that the Committee did 
hear from W. Stephen Cannon, who represented the merchant 
lobbyists supporting H.R. 5546. He did not specifically address 
the policy behind the antitrust immunity granted in H.R. 5546, 
nor did he address the apparent discrepancy in his support for 
H.R. 5546 compared with the unanimous findings of the AMC 
quoted above. Mr. Cannon was a commissioner.) Furthermore, it 
turns out that the legislation is not even necessary to get 
both sides into the same room for discussions. I urge my 
colleagues to oppose this unnecessary and harmful bill.

                                   F. James Sensenbrenner, Jr.