Relates to merchants access to credit card rules and rates

Title of bill

An act to amend the general business law, in relation to merchants access to credit card rules and rates

Purpose

To require banks and other financial institutions which issue credit and debit cards to make a complete copy of their rules available to merchants and to require banks which process credit and debit card transactions for merchants to disclose the complete schedule of interchange fees, transaction rates and other fees imposed upon merchants.

Summary of provisions

The bill provides that credit card associations, issuing banks and acquirers facilitating the acceptance of credit or debit card transactions shall:

* Give the merchant access to a complete copy of the credit or debit card rules;

* Notify the merchant of any change to the rules prior to the effective date and provide merchant with a copy of the new or modified rule; and

* Provide a notice identifying which rates apply and in what situations are the rates imposed.

Justification

Credit and debit card fees have increased precipitously over the past ten years even though interest rates and fraud have gone down, and transaction volume is up. In a competitive marketplace, when costs are down, rates should fall. However, the lack of a competitive marketplace has caused interchange fees to grow exponentially, both with rates and volume increasing.

Credit card companies, along with other financial institutions issuing credit and debit cards, force merchants to enter into agreements under which the rates, rules and fees charged to the merchants are not fully disclosed. Further, the agreements allow the credit and debit card issuers to change the provisions of the contract at any time and notify the merchant after the fact. Very often, the merchant is only given access to a summary of the credit and/or debit card terms, but never receives a full copy of the agreement.

The agreements frequently contain a provision preventing the merchant from disclosing or discussing the rates and fees in its contracts with third parties. This prevents the businesses from comparing the terms with other merchants and serves only to insulate the credit/debit card companies from competition. It also prevents merchants from utilizing trade associations and other third parties to explain credit/debit card terms.

As credit and debit card use continues to grow, the cost to merchants has not decreased with the increased volume, but has actually risen dramatically. Since merchant costs for credit and debit card transactions have gone up, businesses have been forced to spread such costs to all consumers, regardless of whether they use credit or debit cards.

The first step to bringing these costs under control is to require credit and debit card companies to disclose their rules, rates and fees along with the situations in which the charges apply. Open disclosure will serve to promote competition, guard against unfair and unauthorized charges and benefit the public by ultimately lowering the cost of goods and services.

Legislative history

A.7775 (2007-2008)

Fiscal impact

None.

Effective date

This act shall take effect on the one hundred eightieth day after it shall have become a law.