by Alison Storm | 05/7/10

A financial reform bill is making its way through the Senate and lots of rules surrounding credit card use and payments could be developed and debated. One of those rules would control how much credit card companies can charge merchants when consumers use a credit card to make a purchase. The amendments, introduced by Senator Dick Durbin of Illinois, would reduce the more than $40 billion in fees that credit card companies collect each year, according to a MarketWatch report.

The "swipe fees", or interchange fees, that merchants must pay vary from business to business and they also change depending on which card is used. The average "swipe fee" is about 2% for credit card transactions, but merchants generally pay a higher rate when consumers use rewards or corporate cards. Merchants tend to feel negatively about the fees because they eat into profits, but credit card companies say the fees are necessary to counteract expenses such as consumers who don't pay their bills. Senator Durbin told MarketWatch he doesn't oppose the fees completely. "We're not saying there should not be an interchange fee," Durbin said on the Senate floor this week. "We are saying it should be reasonable."

Under his proposed changes, merchants would be allowed to offer discounts to customers who pay with cash, debit or a particular credit card. According to reports, major credit card networks oppose the changes. Another change would allow businesses to set minimum and maximum purchase limits, something that is currently against credit card company policies. Although you may see some stores try to use policies like these, they could actually face fines from the credit card company if they are caught.

Also in opposition to the proposed amendments are credit unions and community banks. They say that this will put them at a competitive disadvantage against big banks. "The consequences of these amendments would make it extremely difficult for credit unions and community banks to continue to provide valuable and responsible debit- and credit-card services to their customers," Dan Mica, chief executive of the Credit Union National Association, and Camden Fine, chief executive of the Independent Community Bankers of America, said this week in a joint letter to Congress, according to MarketWatch. "With government price controls on debit cards issued by big banks, no market mechanism will be in place to prevent merchants from discriminating against consumers who carry the now artificially more expensive debit cards from credit unions and community banks," the letter stated.

In support of the changes are retail organizations such as the National Retail Federation and the National Association of Convenience Stores. "Our five-year battle to pass swipe-fee reform legislation continues," NACS Chief Executive Hank Amour said in a letter to members and reported by MarketWatch. He continued, saying the interchange fees are having a "devastating impact on businesses and are raising costs for consumers." A decision is expected next week.