MasterCard's profits surged 70% last quarter, AP is reporting just this afternoon. The profit alone was $214 million, and it's a company record.
Here's what I want to know: We get upset when oil companies reap outsized windfalls on the backs of everyday consumers. Why don't we get similarly outraged when the credit card companies do the same?
I attempt to answer that below the fold...
I think I know a good part of the answer why: Credit card fees are often hidden. Seems to me that should be an outrage itself, but instead the effect is more "out of sight, out of mind."
Not to mention, some fees you can't even get line-item for. Arguably the most insidious fee, as I've written before, is what's called the Interchange Fee. (As I've also said before, I've been working with a group trying to fight it.) Consider it the ATM fee for merchants (restaurants, convenience stores, supermarkets, gas stations). Except their ATM fee goes up every year. And I really mean that -- up and up. In 2004 Visa and MasterCard collected $26 billion from the Interchange fee alone, and in 2005 it was already $30.7 billion. And whether anyone likes it or not, simple economics means one way or another, we pay that too.
The UK's Office of Fair Trading got MasterCard to lower its rates just by opening an investigation. And now according to American Banker ($$$, alas) the same will soon happen in the European Union. It's almost funny what Visa tries to pass off as a victory:
Peter Ayliffe, the chief executive officer of Visa Europe, said it is confident it can stave off a threatened ban on transaction fees there.
European Union antitrust regulators are backing off previous warnings of an outright ban and likely will settle for a reduction of the interchange fees paid by banks, Mr. Ayliffe told journalists in Rome last week at a meeting of the banks that own Visa Europe, which operates the card system in 36 countries from the United Kingdom to Turkey.
"We're down to talking about what the level of interchange should be," he said.
Brilliant! The Interchange fee isn't evil by any means -- it's just been abused. When created the idea was to balance transactions between banks and their credit card networks, but then they turned into a method of paying reward cards, and in recent years they've become a blatant cash cow. MasterCard posted record profits, and just last month Visa announced it was raising its Interchange fee. Something's not right here.
That said, there is SOME motion on this issue stateside. Rep. Allyson Schwartz (D-Pa) wrote an op-ed for The Hill today about the dangers of credit cards today that touches on this subject:
Additionally, many businesses and consumers are hit with a charge that doesn’t even appear on their statement: interchange fees that are charged to businesses that process credit cards, which in turn either eat this cost or pass it on to the consumer.
The whole article is great. Interchange is the issue I'm focusing on, but if "universal default" (also incredibly insidious) is your issue, she hits that, too. But it's also not enough. Barney Frank, are you reading this? You're on the Financial Services committee... care to write a follow-up?
With momentum building in Europe, we need to see more members of Congress building the case for reform of credit card fee structures. Whether you're just a consumer or a merchant (and even retailers are consumers) we can't let this issue go away. I won't let it.