Credit Card Use Costs Retailers Dear

When Dave Sutey, who runs a chain of convenience stores in Montana spoke to his local newspaper recently, he was surprisingly open about his business’s books. He told the Helena Independent Record that his thrift shop’s second biggest expense wasn’t rent, or leases, or payroll taxes. It was the fees he had to pay for processing debit and credit cards. These charges are called, in industry jargon, “interchange fees” or “swipe fees.”

And Mr. Sutey’s not alone. The National Association of Convenience Stores reckons that those in its sector made $5.2 billion profit in 2008, but paid $8.4 billion in interchange fees. So the owners of those outlets had to pay more–much more–to credit card companies last year than they could pay to themselves for owning and operating their businesses.

Credit Card Use Costs Us All Dear?

Some consumer groups argue that all retailers–it’s not just convenience stores that pay these fees–simply pass on the costs to their customers in higher prices. So with each credit card use everyone pays, even those who settle up in cash.

The American Consumer Institute issued a report Tuesday that claimed that interchange fees cost every American household $337 in 2008, and that amount is likely to be higher this year. The report also suggested that, at nearly $40 billion, swipe fees account for 57% of banks’ total credit card fee income. And it says: “Americans pay the highest interchange fees of all industrial nations.”

Credit Card Regulation the Way Forward?

Some in Congress believe that further credit card regulation is required to bring swipe fees under control. And the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) directed the U.S. Government Accountability Office (GAO) to investigate the charges.

The GAO’s report was issued earlier this week, and–at least in part–concurred with some consumer groups. It said:

Some consumers have benefited from competition in the credit card market, as cards often have no annual fees, lower interest rates than they did years ago, and greater rewards. However, consumers who do not use credit cards may be paying higher prices for goods and services, as merchants pass on their increasing card acceptance costs to all of their customers.

Credit Card Companies Need the Money?

However, the GAO report highlighted other concerns. It also said:

Issuers, particularly smaller issuers such as community banks and credit unions, report relying on interchange fees as a significant source of revenue for their credit card operations, and analyses by banking regulators indicate such operations traditionally have been among the most profitable types of activities for large banks.

It’s become increasingly apparent in recent months just how creative–not to say slippery–credit card companies are capable of being in avoiding regulation that might damage their profits. The New York Times examined Wednesday how a 2003 law in Australia, which sought to regulate interchange fees there, ended up with unforeseen consequences, some of which harmed consumers’ interests.

Real Protection Is Hard to Achieve

If legislators here wish to rein in swipe fees, they have to be tough, both in ignoring the pleas of industry lobbyists–too many of which result in legislative loopholes–and in the skill with which a new law is drafted.

Published 11/26/09 (Modified 04/23/12)