When it comes to paying for retail purchases, the majority of consumers prefer to use plastic rather than cash. In recent years, fast food operators, convenience stores and others that had traditionally been cash businesses began accepting credit and debit cards in response to consumer demand for those payment options.
While consumers prefer the ease of paying with plastic, retailers have maintained that fees levied by banks for processing transactions are exorbitantly high and ultimately wind up being passed along in higher prices to shoppers.
While banks normally pay credit card companies an interchange fee that ranges between 1.6 and two percent of each transaction, the financial institutions are free to add charges for processing transactions.
The National Retail Federation (NRF) estimates that retailers will pay banks $48 billion in fees this year, up from $16 billion in 2001. The current system costs the average American family $427 a year, according to the NRF.
"If consumers knew how much they are actually paying for credit cards, most would say they aren't worth the price," said Mallory Duncan, senior vice president and general counsel for the NRF, in a released statement. "U.S. consumers are paying an outrageously high annual fee that most don't even know about, and the price is going up dramatically every year."
Retailers and credit card companies testified before Congress this week as lawmakers consider a bill introduced by Reps. John Conyers (D-Mich.) and Chris Cannon (R-Utah), that would create a federal panel to set interchange rates and terms. The proposed legislation known as the Credit Card Fair Fee Act (H.R. 5546), has the support of retailers and is strongly opposed by the card companies and banks.
Joshua Floum, general counsel for Visa, said the system envisioned by Reps. Conyers and Cannon, "would replace a competitive, free market system with price controls" and ultimately wind up costing consumers because "smaller institutions rely on interchange to keep their card programs running."
Joshua Peirez, chief payment system integrity officer at MasterCard Worldwide, said merchants have the ability to negotiate fees but have chosen to go through the courts rather than work with banks and card companies. He pointed to interchange fees being reduced for gas stations in 2006 when prices at the pump began to spike.
Retailer have maintained that interchange fees, in reality, are non-negotiable.
"The impact on my industry is incredible," said Tom Robinson, president of Robinson Oil Corporation and vice chairman of government relations for the National Association of Convenience Stores (NACS). "Every time you buy gasoline, I ask you to remember this: The station you are buying it from is paying more than twice as much money in fees than it is making - and every time gas prices go up, the card fees go right up with them…These fees have simply taken over our industry."
Convenience stores paid $7.6 billion in interchange fees in 2007 more than double the industry's profit total, according to Mr. Robinson.
Discussion Questions: Is the Credit Card Fair Fee Act (H.R. 5546) the right approach to the interchange fee problem? Will it ultimately save consumers money as retailers seem to be suggesting or will it wind up costing them more as the credit card companies maintain?
- Retailers assail credit card fees in House hearing - The Associated Press/CNNMoney.com
- Democrat backs credit card transaction fee bill - Reuters
- NRF Says Hidden Credit Card Fee to Cost Families Over $400, Urges Passage of Bill Requiring Visa/MasterCard to Negotiate - National Retail Federation
- High Credit Card Interchange Fees Impact Gas Prices, NACS Testifies - National Association of Convenience Stores