Hope you don't mind me flogging the subject of the Interchange Fee once again, but the LA Times ran a great story this week on the matter. Here's the lede:
Credit card companies have always taken their cut when a customer uses plastic, part of the cost of doing business electronically.
But a surge in the fees has sparked an intense dispute, with small merchants complaining that the higher charges are forcing them to raise prices and, in some cases, threatening to drive them out of business.
For more of the story, and details on how much this actually costing YOU, follow me below the fold:
The whole article is probably worth quoting in its entirety, but let's settle for this chunk:
With the two sides at loggerheads, Congress is preparing to step in on behalf of merchants and consumers. The issue is an inviting one for the Democrats who now control Capitol Hill and are receptive to regulating consumer issues.
Credit card executives insist that the fees are competitive and justified by the increasing number of perks their systems provide, such as identity theft protection and airline frequent flier miles.
But experts say that despite such arguments, the prospect of congressional action could lead to change.
Credit card companies "may change their practices somewhat, but only if they believe a speeding train — Congress — is about to run over them," said Elizabeth Warren, a law professor at Harvard University who has testified before Congress about the fees.
The charges, called interchange fees, vary depending on the type of credit or debit card, purchase and merchant. Most come as a flat fee of 10 to 25 cents per transaction, plus a percentage of the sale, about 2% on average. Thus, a $100 purchase would include about $2 or slightly more in fees, which the credit card company shares with the bank that issued its card and the bank that processed the purchase for the merchant.
The average U.S. family pays the fees indirectly through higher prices, about $300 a year, according to the Merchants Payments Coalition. The Washington-based group, which represents 2.7 million businesses, estimates that merchants' interchange costs more than doubled to $35 billion last year from 2001.
Credit card companies' profits from interchange fees rose 33% from 1990 to 2004, according to a September report by the Government Accountability Office.
Sen. Christopher J. Dodd (D-Conn.), a presidential hopeful and chairman of the Senate Banking Committee, is planning a hearing on interchange fees and is working on legislation that would limit credit card fees and billing practices, his aides said.
"The recent substantial increases in interchange fees significantly raises the cost of engaging in our economy — both for the American consumer and business," Dodd said recently. "Clearly, they need to be examined in greater detail."
$300 a year might not be a lot to the wealthy, but for people living on a fixed income or working for progressive causes in DC (hey, that's me) that $300 counts. That's a few trips to the Safeway on 17th, or several trips to Fox & Hounds (depending on how thirsty I am, of course).
If not for me, then for yourself -- because the galling thing about the Interchange Fee is that even if you do not use plastic, you can't avoid the charge. It's built into all prices because the Visa and MasterCard merchant account rules don't allow for a cash discount. This article points out that it's very profitable for the banks, but that money also goes to pay reward cards. As I put it in my first diary on this subject, the fee is essentially a Reverse Robin Hood Tax -- robbing from the poor and giving to the rich. (No wonder banks tilt their contributions toward Republicans...)
As always, my disclosure is that I'm working with the group mentioned in this article -- their site is UnfairCreditCardFees.com, and you can get a lot more info there. If $300 a year matters to you, I suggest you check it out.