Put your right foot in, you put your right foot out. Somewhere along the way, you shake it all about. That is precisely what this mover and shaker did. Like 'em or hate 'em, the 111th Congress has been a mover and shaker in the card industry.
And we just can't ignore them. I realize Congress is not a popular choice to recognize as a mover and shaker. After all, their actions of late are not likely to make life easier for an ISO. Their actions were mostly about the consumer. New regulations will mean changes for the banks and issuers, and subsequently for the ISO. Objectively, however, Congress has taken bold steps and managed to bring both political sides of the aisle in designing reform - the first of its kind in a long while.
How did this all come about anyhow? Things had to change. It was a harsh year for the American pocketbook. In the middle of a major Presidential election, investors became woefully aware of the mortgage practices when they learned that rickety credit was extended liberally to mortgage applicants. Things got out of hand when their mortgages were bundled and traded like pork bellies in derivatives called credit default swaps.
But these obligations failed. The securities defaulted. Underwriters could not make good on their insurance of them. The world securities markets collapsed. College and retirement nest eggs deflated like a three-day-old helium balloon. Populist malaise mushroomed. Unemployment mushroomed. Credit card debt rose, as did defaults.
Meanwhile, the U.S. House of Representatives had already moved on credit card reform. Congresswoman Carolyn Maloney had sponsored legislation and reform measures long before the markets tumbled. The House bill was just waiting to flow through the rest of Congress. It was helped by Madame Speaker of the House, Nancy Pelosi, and others such as Congressman Barney Frank, the House Financial Services Committee chair. Frank, a mover and shaker in his own rite, with his necktie ever eschew, quipped and whipped with a well-trained tongue unabashedly against banks.
While the House planted the groundwork for the bill, things began to look like Armageddon on Wall Street, and reform was just ripe for the picking. The Senate stepped in to finish what the House started. Democratic Senator Christopher Dodd of Connecticut, whose state is home to starchy bankers and Wall Street hawks, called the CARD act a "great day for consumers." Alabama Republican Richard Shelby had struck some compromise on the provisions of the bill. An amendment by Senator Tom Coburn of Oklahoma restored a previous policy that allowed loaded handguns to be carried on the grounds of National Parks.
The CARD act of 2009 passed with bipartisan support. A mere five Senators opposed it — four Republicans and one Democrat. The American Banking Association (ABA) opposed it, and was the principal voice of opposition, along with others such as the Electronic Payments Coalition (EPC), in the political debate. Yet, in the end, with subsequent amendments, even the ABA came away from the bill calling it "tough, but workable."
Is this enough regulation for now? Not exactly. Senate Majority Whip Dick Durbin of Illinois recently introduced the Credit Card Fair Fee Act of 2009. The measure requires Visa and MasterCard banks to negotiate interchange fees currently imposed on merchants. Presently, such fees are non-negotiable, and a longstanding gripe of retailers and merchants. Convenience stores have organized to protest the interchange fee conundrum as some say they are their second highest cost of operations after payroll. Home Depot has been very vocal in stating that interchange fees are killing them.
With an option to negotiate interchange fees, retailers could attempt to negotiate a fee agreement and if they stalemate, both sides would submit their final offers to binding arbitration by a three-judge panel appointed by the Department of Justice and Federal Trade Commission. A week earlier, House Judiciary Committee Chairman John Conyers, D-Michigan, introduced a House version of the Credit Card Fair Fee Act of 2009.
These latter two pieces of legislation give Congress the opportunity to regulate on behalf of some party other than consumers. Organizations such as the National Retail Federation support such efforts but others like the EPC oppose it. Congress seems to be working its regulation from the bottom up — and the ISO is not helped at all by this approach.
Can Congress be fairly criticized for their actions? "Congress has been tremendously active in legislating to the card industry over the past year," says Duncan Douglas, an attorney with the law firm of Alston and Bird. "The Credit CARD Act has been the most noteworthy piece of legislation actually enacted, but bills directed towards capping interest rates, changing the manner in which merchant discount rates are negotiated and establishing a new federal regulator to oversee consumer financial products have been pushed farther and harder over the past year than in prior years. My concern with Congressional action in the card industry is twofold. First, I worry that Congress sometimes acts to demonstrate that it is doing something, even where not taking action would be the better long-term solution. Second, I believe the blunt instrument of legislation is sometimes applied in contexts that really require more carefully studied and precisely crafted regulation." Will Congress' next step be to legislate for small businesses? Will ISOs be part of those small businesses? Maybe. Maybe not. If they do, it will in the spirit of protection to keep consumers buying, merchants able to stay afloat, and, well, not much for the rest of the card payment food chain.
"I don't anticipate Congressional action specifically targeted to small businesses in general or ISOs in particular," adds Douglass. "Certainly there are proposals in Congress that would benefit small businesses, such as the Conyers/Durbin merchant discount bills, but Congress appears for now to remain focused on general risks within the financial services industry and on consumer protection more so than on the protection of small businesses and ISOs."
And Congress' purported focus on small businesses is opposed by the EPC who launched a full-court press to dispute what Congress has put forth. Their website is replete with a deconstruction of alleged falsities of the interchange legislation, and countered with truths.
Here is what they say about the unde's growing and thriving electronic payments system allows even the smallest kiosk on Main Street to compete on a level playing field with the world's largest retailers. And studies of small retailers find that revenues jump 50% when they begin accepting debit and credit. Interchange legislation, however, would result in a tightening of consumer credit — meaning fewer sales for small merchants, higher fees or restricted credit for their own business credit cards - or potentially the loss of the ability to offer card acceptance altogether. Hidden under the guise of "helping small business" interchange legislation would in fact
create a destructive domino effect for small business owners at a time when they can least afford it."
The ECP contends that merchants already have power to choose and don't have to necessarily, "take-it, or leave-it," when it comes to these fees. They state: "Merchants can, and do, shop around and negotiate for the best possible rates and terms for accepting credit and debit cards from among thousands of banks and card processors. Small retailers also work through local chambers or trade associations that will frequently offer significant savings on card acceptance. Furthermore, there is nothing prohibiting any merchant from engaging in a negotiation directly with Visa and MasterCard. Merchants can — and do — negotiate interchange fees applicable to their transactions based on a variety of factors directly with MasterCard or Visa."
So there we have it. A year of tumult, with a new President who campaigned on the premise of "change we can believe in," a Democratic majority in the House and Senate for almost three years, and voila, you have credit card reform. These measures have been introduced and passed swiftly — some would say at lightning speed. Their full merit is to be determined, as is future action by Congress.
But the 111th Congress doesn't seem to have too much concern for the food chain beyond the merchant. The ISO seems to be stuck in the middle. Big banks did get some bailout. Consumers got some favorable terms and conditions on their credit cards. ISOs seem stuck in the middle between the free market folks and the regulators - damned if they do, and damned if they don't. 
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