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FMI Asks Fed to Investigate Fast-Rising Electronic Payment Fees

WASHINGTON - Citing a 2003 report by the Tower Group Food finding that food retailers handle over half of all PIN-based and signature-based debit transactions, the Food Marketing Institute has requested that the Federal Reserve investigate the rising costs of fees for electronic transactions and explore ways to cap such costs and to disclose them to consumers, in comments filed by George Green, FMI v.p. and general counsel.

In its request to the Fed, FMI noted the following:
-There have been 11 credit/debit rate increases in the past year, with still more expected this year.

-PIN debit fees have increased 267 percent since 1999.

-Electronic payments volume has increased over 500 percent from 1989 to 2000, and continues to go up.

-Card associations collected $29.2 billion in 2003 on interchange fees, which banks impose on retailers for all electronic transactions.

-The current interchange fee model is inverted from normal competitive market models -- more volume means more cost; volume cannot be used to lower costs; merchant fees are invisible to consumers.

FMI commented in a statement, "[T]he cost of accepting these [PIN and debit] cards has been skyrocketing, often exceeding the 1 percent net profit margin of the typical grocery store."

According to FMI, "[F]inancial institutions are intentionally trying to switch consumers to signature debit, which is slower, less secure, and significantly more expensive for retailers and ultimately for consumers." This practice is "contributing to the growing national problem of identity theft. Thieves can use signature debit cards to empty consumer checking/saving accounts without needing a PIN."

The organization observed, "The United Kingdom, Australia, Israel, and the European Union have initiated actions such as caps on fees, changes in operating rules, antitrust/fair trade investigations, studies, and legislation."
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