WASHINGTON — The National Retail Federation told state attorneys general this week that credit-card interchange fees have created a scenario similar to the one that led to the current mortgage crisis.
"It is just as much in the banks’ interest to get as many cards into consumers’ hands to collect the interchange fees as it was for banks to get mortgages issued to collect the origination fees,” said Mallory Duncan, NRF senior vice president and general counsel, speaking at meeting of National Association of Attorneys General.
Duncan said card issuers used to focus primarily on whether a cardholder could afford to repay the amount charged on a card and made most of their money off the interest, but now "the card fees alone generate a huge revenue stream.”
Duncan said the shift is similar to the way in which banks once held mortgages for their full 30-year terms and depended on interest for a profit, but evolved to a point where mortgages are sold off to other institutions, and the issuing bank or mortgage broker makes its money from origination fees regardless of whether the borrower ever repays the loan.
NRF pointed that that last month, Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking, Housing and Urban Affairs Committee, also said interchange fees create “the climate of” the “problem we saw with the residential mortgage market.”
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