Visa CEO Triggers Interchange Interplay

With some people, just saying the word "interchange" is like pressing the play button on a tape machine: You're bound to get an earful, no matter what side they're on. Hence the strong reactions, pro and con, to Visa Chief Executive Joseph Saunders' Feb. 1 Viewpoint, "Proposed Debit Rules Would Harm All."

"Price fixing is bad public policy," Saunders wrote in his critique of the Federal Reserve's proposed rules implementing the Durbin amendment to the Dodd-Frank Act. Just a few hours after we posted the piece online, a rebuttal rolled in from Mallory Duncan, the senior vice president and general counsel of the National Retail Federation, who reiterated the long-held merchant view that the way Visa sets interchange rates is itself anticompetitive ("Visa Chief's Call Against Price Fixing Rings Hollow," Feb. 2).

Eric Grover, a principal with the payments consulting firm Intrepid Ventures and a Visa veteran, sided with Saunders on the substance of the issue, but gave the merchant lobby points for style: "Duncan and the merchant lobby have been more politically adept. They successfully framed the issue narrowly in terms of merchant swipe fees and justifying interchange based on costs — a public utility model." Grover urged the payments industry to "seek to repeal the Durbin interchange amendment. … On Visa's earning call Saunders said 'consumers have been thrown under the bus.' That's exactly the right way to frame the issue."

Jeffrey I. Shinder and Matthew Cantor, lawyers at Constantine Cannon who are representing merchants in discussions with the Fed, echoed Duncan by calling Saunders' complaints about price fixing "ironic."

"For years, to avoid antitrust liability for price-fixing, Visa has consistently denied that interchange is a price," Shinder and Cantor wrote. "Rather, Visa claimed that interchange is a 'transfer.' … Now, with the prospect of substantial reductions in debit interchange on the horizon, Visa has, unsurprisingly, revisited its position. Now, interchange is a price after all and any regulation of it is price-fixing. … In Brooklyn federal court, where Visa continues to confront accusations that it facilitates a price-fixing cartel, Visa continues to argue that interchange bears no resemblance to a price." The company is trying to "have its cake in Washington and eat it too in Brooklyn," the lawyers wrote.

Although smaller banks are exempt from the amendment, Saunders warned that they will still have to cut their debit interchange rates to compete with the larger institutions that are required to do so. Shinder and Cantor called this argument "disingenuous. … It is belied by Visa's admission that it will configure interchange rates to provide higher rates for the unregulated smaller banks — an admission that contravenes Visa's prior position that this was operationally impossible."

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