With the 110th U.S. Congress now in session, the Democratic majority continue to take a strong stance on issues concerning the card industry that affect the well-being of consumers.
The Democratic caucus includes such initiatives and positions on items such as predatory lending – particularly in the mortgage industry, and a heightened watch on identity theft and fraud with regard to all aspect of financial services - including the card industry.
In the Senate, there is a continuous effort to look after both consumers and merchants in the context of card transactions by keeping a watchful eye on interchange fees.
‘’The recent substantial increases in interchange fees significantly raises the cost of engaging in our economy - both for the American consumer and business,’’ said Senator Christopher Dodd of Connecticut a leader in the Senate Finance Committee and a Presidential
hopeful. ‘’Clearly, they need to be examined in greater detail.’’
Senators Carl Levin - D of Michigan and Norm Coleman - R of Minnesota, chairman and Ranking Republican of the Senate’s Permanent
Subcommittee on Investigations, recently held a subcommittee hearing
to examine fees, interest rates and grace period practices used by credit card companies. These fees wind up on the backs of consumers with billions of debt. They have the Senators concerned.
“The credit card industry thrives on the confusion and powerlessness of consumers to both nickel and dime the average card-holder and to commit highway robbery of anyone who slips up even in the slightest,”
said Levin.
At the beginning of 2007, Harris Interactive polled some 2000
adults about interchange fees and their feelings toward these fees.
Not all were so familiar with what the term meant, however the poll showed that 32 percent had heard the term “interchange fee.” Once the term was explained to them, 91 percent felt that Congress should urge credit card companies to better inform consumers about these fees.
Interchange fees are only one of several ways that government regulators will appear in transaction operations. There is talk that the IRS may be looking at credit-card receipts reported by companies as a means of cross-checking reported business income within that industry. Such practice has been met with dissent, with critics saying that such cross checking would require enormous data efforts and would run into the hundreds of millions of dollars to implement, not to mention an implementation schedule that would take years to fulfill.
There have also been more rumblings that lawmakers are probing ways for the IRS to attain information about e-commerce income earned from online sales and auctions . The Senate is also considering whether to require processors of online transactions to comply with reporting requirements – a very costly endeavor if it were to come to fruition.
So in light of recent news events, what else is on the horizon with regard to the regulation of electronic transactions in the months ahead by Washington, D.C. regulators?
According to Ed Wilson, Partner at Venable LLP, a top Washington DC law firm, and former Acting General Counsel at US Treasury Department, there are several issues that will be examined in this Congress.
Wilson’s first point-of-emphasis is on gift cards. “The issues here are whether the initial purchaser of a gift card (or other stored value card that is transferable) will have to provide identification meeting the USA PATRIOT Act customer identification program requirements administered by Financial Crimes Enforcement Network (FinCEN),” Wilson explains. “Each card will have to have a unique identification number. The purpose behind such moves would be to link each gift card to a specific person so that if the card is used to launder money, there is a starting point for the investigation.”
Wilson concurs that interchange and process fees are tops on the list of concerns. “The issue here is that these fees, paid by the retail establishments, are substantial and are being examined by EU and Australian regulators,” he says.“ While US regulators could police the system, we think it is more likely that Congress will examine, if not take on the issue.”
Still yet, Wilson sees a growing concern by legislators regarding cross border wire transfers. “Australia requires that certain originator and beneficiary information on wire transfers leaving that
country be captured and supplied to the US government” he explains. “FINCEN has begun examining imposing the same requirement here. Now that there is a new Director at FINCEN (appointed very recently), this issue may again arise. A number of major players in the field are against it (including former FINCEN director Bill Fox).
Wilson also feels that the growing concern to protect consumer privacy is by no means waning. It has been an ongoing issue with those in the electronic transactions industry and should continue to be so until security and risk issues improve.
Immigration has been in the news, but the immigration issue coincided with the interests of card transactions when Bank of America stepped forward to offer undocumented immigrants credit cards for a hefty fee and a hefty interest rate.
There has been a flurry of concern as immigration policy struggles with the influx of immigrants across U.S. Borders daily. Then Bank of America announces that they will accommodate them with credit cards.
The Wall Street Journal broke a story that made the newswires about the bank’s issuance of credit cards to individuals without a social security number. According to a Reuters report “ banks across the country have been offering checking accounts and even mortgages to the nation’s fast-growing ranks of undocumented immigrants, most of whom are Hispanic, the [Wall Street Journal] paper said, adding these immigrants generally have not been able to get major credit cards.”
The Bank of America Card is suited for those who lack a Social Security number and a credit history, they only have to hold a checking account with the bank for three months without bouncing checks.
Wilson sees the niche of immigrants actually as good business from the perspective of financial policy. “These individuals send an average of slightly under $250/month home on a salary basis of about $16,000/year” he explains. “In addition, they manage to save a considerable amount. So, finding a way to bank them gives the successful bank fee income and larger footings on which to make more loans. At the same time, by using Bank of America bank cards at both end of a remittance payment, the sender is reducing the cost of the remittance from about $15/payment to $4.50/per the ATM fee in Mexico, for example.”
What issues are we likely to hear more about in the months to come?
One topic that just will not go away is consumer safety and the integrity and privacy of their data.
In 2005, Visa issued some $3.4 million in fines for improperly storing data. The figure climbed to
$4.6 million in 2006.
The nation’s restaurants and retail outlets have continued to see an abundance of incidents whereby employees and other criminals steal data and exploit consumers’ card accounts. The control of this issue is of heightened concern by regulators at all levels of government – not just federal.
It also has electronic transaction technology pundits busy developing software and devices that will curb this incidence of fraud and enable more consumer safety.
A means of insuring better consumer safety is to find ways to improve upon disclosure to consumers about the terms of their electronic transaction. This is something that may be created by issuers, but requires acquirers, merchants and those who sell processing services and equipment to be familiar with such disclosure.
When Senator Norman Coleman of Minnesota testified in early March to a Permanent Subcommittee on Investigations (PSI) with regard to the credit card industry, he seemed to give a flavor of where he stood which is not far apart from where many others on the financial services committees and subcommittees in both the House and Senate stand.
“The disclosures contained in card agreements are written by and for lawyers with an eye more toward staving off litigation rather than educating consumers. Too often, consumers are caught unaware by important terms buried deep inside dense, fine-print contracts, replete with interminable sentences and complex jargon,” said Senator Coleman.
“It should come as no surprise to learn that the Government Accountability Office recently reported that disclosures are sometimes written at a ‘twenty-seventh-grade level.’ I can only assume that one would need—after twelve years of grade school and four years of college—a 4-year medical degree, a 5-year PhD, and a 2- year MBA to fully grasp those particular provisions.”
Yes, it seems that lawmakers – both Democrats and Republicans are calling for the industry to “clean up its act.” Says Senator
Coleman: “Regardless, something must be done. To be sure, credit card companies provide absolutely vital services for American consumers, employ over one hundred thousand Americans of all stripes and are sizeable components of the pension plans that many Americans rely on in retirement. But as one prominent industry insider recently remarked to me, “The industry has gone too far, pushed too far and needs to clean up its act.”
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