Maybe the credit card crackdown won’t hit Visa and MasterCard so hard after all.
Shares of the companies rose after Sen. Richard Durbin, D-Ill., said that members of the House financial reform conference committee agreed to changes on his plan to reform the markets for credit and debit card transactions.
One shift limits the Federal Reserve’s authority to regulate the fees Visa and MasterCard charge on their networks, a change one analyst dubbed “a tremendous victory for Visa and MasterCard.”
The companies, which operate card networks and collect billions of dollars in fees on transactions, saw their shares rise as much as 8% in afternoon trading.
Even so, Durbin said the compromises strengthen the bill.
“I’m pleased that we were able to reach an agreement which makes minor changes to strengthen consumer protections and bring competition to a market where there is none,” Durbin said.
Notably, the Senate measure had prohibited restrictions on discounts merchants might offer to encourage the use of MasterCard over Visa, or vice versa.
That provision was stricken and replaced by one directing the Fed to issue rules against debit card exclusivity. Durbin singled this change out for praise.
“This provision also provides additional competition to a previously non-competitive part of the market,” Durbin’s office said in a press release. “It allows merchants to choose the debit network with the lowest cost – the opposite of the current system where merchants are forced to use a specific network with fixed prices.”
The financial reform process has weighed on the shares of Visa and MasterCard, which had been among Wall Street’s favorite stocks because of their lucrative fee-taking franchises. Even after Monday’s rally, Visa was down 6% and MasterCard twice as much, amid concern that Congress will trim the companies’ sails.
The Association for Convenience and Petroleum Retailing, the lobbyists for 7-11 and other minimart operators, has been complaining about steep interchange fees for years. But Lyle Beckwith, the group’s government relations chief, says the latest compromises are part of a “give and take process” that results in a fair bill.
“I think the stocks are up because the market likes to have a sense of certainty that this process is coming to an end,” he said. “It’s not a reflection of some giveaway to Visa and MasterCard.”
Even so, the legislation seems fairly tame from the companies’ point of view, particularly given Durbin’s warnings last week about the stakes in the debate.
The companies’ duopoly power has allowed them to levy ever-increasing fees, Durbin said. Those fees impoverish consumers and retailers, he said, by turning $1 at retail to 97 or 98 cents for card-accepting merchants, after Visa and MasterCard take their cut.
This poses a threat not just to Americans’ wallets, but also to the nation’s very economic foundation, he thundered on June 16.
“If we don’t take steps to reasonably regulate this system, a dollar won’t be worth a dollar anymore,” he said. “It will be worth whatever Visa and MasterCard want it to be.”
For whatever reason, the companies haven’t yet asked for that power.