With the recent introduction of HR5546 The Credit Card Fair Fee Act of 2008 by Congressman Conyers of Michigan, the issue of interchange and it’s future is being heavily discussed.

On one side of the discussion are merchants and retailers that believe they are being charged too much for the card transactions they process. A core message in this argument is that industry players Visa and MasterCard have too much power in setting interchange rates and that these rates ultimately impact the price of goods consumers purchase. And who doesn’t want consumers to be able to pay lower prices for the goods and services they purchase? Do you really think that a merchant will pass back any reduction in interchange fees they negotiate with a card association to their customers?

Retailers contend that if the larger card associations are left to set rates without oversight, then rates will continue to rise as they have over the last 20 years (Note: overall interchange rates have been increasing, albeit very slowly).  I’ll also point out that the costs to issuers of processing cards has increased in the last 20 years.

This bill aims to create a negotiation between the card associations and the retailers. This negotiation process would determine the interchange rate to be paid and if agreement cannot be reached then a government agency would step in and set the rate. I don’t think either party really wants the government to be in the business of setting interchange rates.

Plus, does this sound like a system where the smaller merchant has a chance to get a better interchange rate? I think Wal-Mart stands to gain more with this bill than anyone!

As always, the folks over at Javelin have a great discussion on this issue at their blog.