Credit Card Use Unfair?

You’ve just bought groceries and paid with your credit card. The bill came to $200, but the store receives only $196, because the card companies hold back four dollars in so-called “interchange” fees. You don’t pay the four dollars. The store does. And the retailer almost certainly makes up that shortage through higher prices.

So, every single customer in the store contributes to the cost of your using your credit card. Including that desperate looking woman who was behind you in the check-out queue, and who’s now about to pay for her meager groceries using food stamps.

Not That Simple

Actually, it’s unlikely that a grocery store would pay two percent in interchange fees. Generally, credit card terms mean that food outlets pay less. But the principle is sound. And two percent is the average that American retailers pay in interchange fees on credit card use.

More Credit Card Regulation on the Horizon?

Certainly some members of congress think that the current arrangement of credit card charges for interchange fees is unfair. And, last year, a small group tried to introduce legislation that would have forced card companies to disclose the relevant rates, terms, and conditions to consumers, businesses, and the public. It would also have freed up retailers to offer discounts to those who pay cash.

That legislation didn’t make it into law. But legislators are currently looking at interchange fees again, and new credit card regulation in this area is a real possibility.

Other Side of the Argument

Of course, credit card companies see all this entirely differently. They argue that interchange fees are just another cost of doing business–like wages, rent, and utility bills–all of which are passed on to customers.

You can see their point. After all, the rich tend not to clip coupons, but all the costs of a coupon campaign (advertising, administration, the value of the discounts themselves) are shared out among all a store’s customers.

Why Pay So Much for Credit Card Use?

One question that credit card companies should answer is why American businesses (and, ultimately, American consumers) have to pay so much in interchange fees.

Rep. Peter Welch (VT-AL) was one of the congressmen who tried to regulate these charges last year. At the time, he claimed: “Credit card interchange fees in the United States are the highest in the world, accounting for as much as 2 percent of the cost of every credit card transaction. By comparison, fees in the United States are almost three times more than in Australia (0.7 percent) and four times what consumers and businesses pay in the United Kingdom (0.5 percent).”

“Stop Unfair Credit Card Fees” Petition

For the last few months, 7-Eleven, Inc.’s franchisees, and store operators have been holding a petition drive against interchange fees. And on September 24, the company announced that it was sending more than 1.6 million signatures to Washington D.C.

In its press release, 7-Eleven made some startling claims. It said that interchange fees were worth $48 billion in 2008, and “According to the National Association of Convenience Stores (NACS) 2008 State of the Industry data, on average, an American convenience store owner paid 63 percent more in transaction fees than they earned in profits.”

If those figures are correct, powerful interests will be lining up on both sides. And this should prove an interesting battle.

Published 10/13/09 (Modified 04/23/12)