For Immediate Release
Contact:  J. Craig Shearman, 202-626-8134, [email protected]

Merchants Welcome NY Legislation Addressing Hidden Credit Card Fees

Washington, D.C. (May 9, 2006) -- The Merchants Payments Coalition (MPC) today welcomed the introduction of legislation in the New York State Assembly that would mandate that sales tax cannot be subject to interchange fees levied by credit card companies like Visa and MasterCard.

“Picking the pockets of American consumers by charging hidden interchange fees that drive up the cost of merchandise is itself fundamentally unfair, but this legislation properly exposes one of the most egregious credit card company practices – adding these fees on top of the taxes the state collects,” said Mallory Duncan, chairman of the MPC and senior vice president and general counsel of the National Retail Federation. “The credit card companies’ practice of adding a hidden fee on top of a tax is unconscionable. Americans have a right to know how much the interchange fee is on any transaction that involves a credit or debit card, just like they know the fee on an ATM withdrawal.”

MPC is working closely with New York merchants and organizations supporting this legislation.

“New Yorkers already pay $8 billion a year in sales taxes, and are among the nation’s heaviest users of credit cards,” said Jim Rogers, president of the Food Industry Alliance of New York State. “Charging interchange fees on sales taxes is a tax on a tax that increases every day as the fees continue to rise and card use explodes.”

A.B. 11193 was introduced May 2 by Assemblyman Richard L. Brodsky, D-Westchester. The measure would bar credit card companies from applying credit or debit interchange to the sales tax charged on a purchase. Doing so would be declared an unlawful and deceptive act.  New York merchants paid $95.7 million in interchange fees on sales tax last year, according to an Assembly summary of the bill. The legislation has been referred to the Assembly Consumer Affairs and Protection Committee.

Introduction of the bill comes on the heels of similar legislation introduced in the Kentucky legislature that prohibits credit card companies from charging interchange fees on sales taxes. Additionally, legislation was recently introduced in the Alabama legislature urging the U.S. Senate to conduct hearings on interchange fees.

Interchange, a fee that is collectively set by Visa and MasterCard’s issuing banks, is a percentage of each transaction – sometimes accompanied by a flat fee – that banks collect from retailers every time a credit or debit card is used to pay for a purchase. The fee varies with type of card, size of merchant and other factors, but averages close to 2 percent. Total credit and debit card interchange collected by Visa and MasterCard amounted to $26.7 billion in 2004, according to the Nilson Report, a business magazine that covers the credit card industry.

Interchange fees are hidden from consumers because Visa and MasterCard contracts bar merchants from disclosing them on receipts, requiring instead that they be built into advertised prices and effectively barring cash discounts.

Interchange is charged on the entire amount of a transaction, including sales tax. Merchants are not allowed to deduct the fee from the tax revenue submitted to state and local governments, however, meaning that prices of merchandise are further driven up in order to cover the amount interchange adds to sales tax obligations.

"With New Yorkers paying a combined state and country sales tax of approximately 8 percent on their gasoline purchases, these excessive interchange rates further compound consumers' pain at the pump," added James Calvin, president of the New York Association of Convenience Stores. New York's approximately 3,900 convenience stores sell an estimated three-quarters of the gasoline purchased in the state.

The MPC, a coalition of some 20 trade associations representing retailers, restaurants, supermarkets, drug stores, convenience stores, gas stations, on-line merchants and other businesses that accept debit and credit cards, was formed in 2005 to seek ways to address rising interchange rates.