Fat ‘swipe’ fees prey on consumers

Published 9:31 pm Tuesday, March 29, 2011

By Susan Milhoan

Just when we thought Congress had finally restored some fairness to runaway credit card processing fees, some lawmakers are trying to reverse course, suspending a portion of the Wall Street Reform and Consumer Protection Act, which requires the Fed to ensure that debit fees are reasonable and proportionate to issuer costs.

Recently, Senators Jon Tester (D-Montana) and Bob Corker (R-Tennessee) introduced the Debit Interchange Fee Study Act (S. 575), a ploy that does nothing more than delay implementation of legislation that has already passed. In this case, it would postpone steps to make credit card fees reasonable and transparent.

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Credit and debit card swipe fees are an enormous — and growing — cost for merchants and consumers. The average American household pays hundreds of dollars a year in swipe fees, which are part of the cost of virtually every transaction they make. Why? Because swipe fees are hidden in the cost of nearly everything consumers buy.

Nearly $2 of every $100 consumers spend when they pay with plastic goes directly to Visa and MasterCard. Americans paid more than $48 billion in swipe fees in 2008, more than twice what was paid in credit card late fees and three times ATM fees. The actual cost of such transactions to banks and credit card companies, as determined by the Federal Reserve, is just 12 cents.

Much like the grossly unfair BPOL tax, which originally was created to fund the War of 1812, the swipe fee is no longer serving its original purpose. Initiated in the 1960s to cover the transaction costs of using credit cards, it is now a cash-cow for big banks that issue more than 90 percent of all MasterCard and Visa cards.

Here’s what they don’t want you to know: Only 13 percent of the credit card interchange fee goes to processing credit card transactions; much of the rest goes to pay for billions of pieces of unsolicited junk mail and other dubious credit card marketing activities.

The same reckless, predatory lending practices that led to the sub-prime mortgage meltdown still continue today with credit cards. Inflated swipe fees have created an incentive for the big banks to abandon responsible underwriting practices in favor of a fee-driven business model in which virtually anyone can get a credit card.

It seems these institutions now care more about maximizing fee income than helping borrowers understand how to afford and repay their debt.

It’s time to tell Washington that we will no longer tolerate these outrageous fees. If you believe in free enterprise, then you know that lower business costs leads to lower prices for consumers. When merchants save money, they usually pass it along to customers in the form of lower prices — that’s how they beat the competition.

And that’s why consumer groups strongly support swipe fee reform: They know it can’t help but lead to lower prices for consumers.

As an organization dedicated to preserving the rights of retailers and greater choice for consumers, we at Retail Alliance will do everything we can to oppose unfair credit card fees and promote a more competitive and transparent card system that works better for consumers and merchants alike.

If you agree, please write, email or call Senators Mark Warner and Jim Webb and tell them to oppose these efforts to take money out of our pockets.

Susan Milhoan is president and CEO of the Retail Alliance.
She can be reached at 466-1600 or by emailing smilhoan@retail-alliance.com.