Not only is Congress casting a scrutinizing eye toward credit card companies policies and procedures when it comes to cardholders, merchants are starting to ask more questions as well. The fact that merchants have always had to pay a little extra to the credit card companies in the form of interchange fees whenever a customer makes a purchase with plastic is nothing new. The ever-increasing fees associated with credit card transactions, however, has angered many of these merchants who have to pay them.
The amount of these fees varies according to the type of card the consumer is using, as well as the type of purchase and even who the merchant is. In most cases, the cost is a flat fee of 10 to 25 cents for each transaction as well as a percentage of the total sale. Generally, this percentage is set at 2%. This money is then shared by the credit card company with the bank that issues the card as well as with the bank that processes the purchases.
In addition to the high cost of these fees, they seem to be continually rising over the years and credit card companies are making a significant amount of money from them. From 1990 to 2004 alone, the Government Accountability Office reported that credit card companies enjoyed a 33% rise in profit based on interchange fees alone.
As a result of the battle between merchants and credit card companies, Congress is thinking of once again getting involved. From the credit card companies’ perspective, the fees are fair and they feel the increases are justified because the credit card companies have been continually adding new perks to their cards. These include airline frequent flier miles and identity theft protection.
My question is, why is it the merchant’s responsibility to foot the bill for these perks? After all, the credit card companies are offering them in an effort to drum up new business, which makes them even more money. So, it sounds to me as if they are making more cash off of the hard work of merchants – particularly from the small business owner.
With Congress taking a closer look at these practices and considering placing a limit on the amount of these fees, business owners just might find some relief. In addition, card carriers may find some relief as well if merchants pass the savings on to them. Currently, the average family pays about $300 per year as a result of the higher prices created from these interchange fees. In addition, merchants are paying out approximately $35 billion every year because of the fees.
I think Travis Plunkett, legislative director of the Consumer Federation of America, put it best when he said, “For too long this industry has gotten the message from Congress and regulators that they can charge what the market will bear even if those charges strike consumers, merchants or cardholders as unfair, deceptive and unnecessary.” Hallelujah – it is time for a change!
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