Credit card companies’ shares plunge on news of Fed plan to cut fees by up to 90 percent
D.C., Washington, United States (AHN) – News of a Federal Reserve plan, unveiled Thursday, to cut fees collected by credit card companies caused the value of Visa and MasterCard shares to plummet by over 6 percent.
Visa’s stocks plunged by 6.1 percent or $4.66 to $72.28 and MasterCard’s shares charged down by 6.2 percent to $233.70 at the New York Stock Exchange composite trading.
The Fed proposed on the same day new rules that would curb fees collected by credit card companies and offered alternatives which would help retailers, but cut profit of card companies in the U.S. that earned up to $15 billion in 2009.
The Fed proposed to place a cap on the interchange or swipe fees from 7 to 12 cents per transaction or three-tenths of one percent of a purchase’s face value. Currently, card companies charge an average of 1.3 percent, while smaller retailers charge higher due to the lower volume of transactions handled and decreased bargaining power.
The agency also proposed a reevaluation of the fee ceiling every two years. The Fed opened the new credit card rules proposal to public comment until February. Final rules are expected to be finished by April and implemented by July 2011.
Visa declined to comment on the Fed proposal because the company is still reviewing the details of the planned new rules. MasterCard criticized the Fed’s proposal because the agency failed to consider other costs incurred by credit card companies.
A day before the Fed unveiled the new rules, the Canadian Competition Bureau asked the Competition Tribunal to issue a prohibition order against Visa and MasterCard because of anti-competitive tactics used by the two firms, which control 90 percent of the Canadian credit card market. The watchdog said stores and consumers pay $5 billion yearly to the two firms in the form of hidden card fees.
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