Congressional Regulation of Credit Card Interest Rates: The Case of Credit Card Fair Fee Act of 2008
Date of Award
Spring 2009
Degree Type
Thesis
Degree Name
Master of Public Administration (MPA)
Department
Political Science
Abstract
The Credit Card Fair Fee Act of 2008 was introduced as a bill in 2008 following an increased uproar from the public regarding the current system of setting fees that merchants pay for credit card transactions. Many viewed the current system as unfair, unjust, anti-competitive and secretive with the hidden fees.
The bill was introduced in the House Judiciary Committee on March 6, 2008 by John Conyers; Chris Cannon from Utah was among the forty five co-sponsors of the legislation. The bill is designed to reinforce transparency and competition in the credit card industry. This bill does not set prices. Instead, it requires that fees be set in a transparent manner so that other companies can compete for business and consumers do not pay artificially high rates.
The Credit Card Fair Fee Act of 2008 authorizes providers of a single covered electronic payment system (e.g. Visa or Master charge credit cards) and any merchants to jointly negotiate and agree upon rates and terms for access to such a system. It defines covered electronic payment system as any system that has been used for at least twenty percent of the combined dollar value of United States credit, signature-based debit, and PIN-based debit card payments processed in the applicable base year. Moreover, it grants limited antitrust immunity to such providers and merchants, as well as to those providers who jointly determine among themselves the proportionate division of paid access fees. It also sets forth procedures to determine rates and terms for access to a covered electronic payment system.
The Act prohibits any other rates and terms from being imposed upon a merchant for accessing a covered electronic payment system except as specified in a voluntarily negotiated access agreement. It also sets to create a panel of three full-time Electronic Payment System Judges, appointed by the Antitrust Division of the Department of Justice and the Federal Trade Commission Bureau of Competition, to determine the schedule of rates and terms for three-year periods. The judges will act as the judicial review committee of the bill. It will authorize providers and merchants to engage in voluntarily negotiated access agreements. It will declare that such voluntarily negotiated access agreements shall be given effect with respect to the signatories in lieu of any determination by the judges.
Congress began debating on the Act on March 6, 2008 with a growing number of card issuers increasing their profits by loading their credit cards with tricks and traps. The bill did not go through the first time but the current economic situation in America and the rising consumers’ complaints made Congress to revisit the bill. The bill’s first phase of implementation will be in November of 2009.
The purpose of this paper is to examine the Credit Card Fair Fee Act of 2008, analyze the inception of the Act’s concept and compare what other scholars and writers are saying and/or writing about the Act. The paper also highlights what society has to say about the inception of the bill.
Currently, there is still a lack of short-term credit in the United States economy, making financing for businesses, individuals, and even governments difficult. Credit markets remain paralyzed, with everything on hold and with many major corporations having failed or at the brink of failing. At the same time, hedge funds and private equity funds, that have provided some small amount of lending, are unwinding, accelerating the economic decline. Until bank and non-bank financial institutions resume lending, there will be a continuing downward economic spiral. The Act, if approved by both houses of the U.S. Congress and signed into law, will provide for better lending terms to avoid future relapse on the current situation.