Dallas (July 8, 2009) – In communities across America, 7-Eleven store owners and operators are undertaking an unprecedented, million-signature petition campaign calling on Congress to reform unfair and excessive credit card transaction fees.
Some 6,300 7-Eleven® franchisees, licensees and store operators in the U.S. are working to change the way credit card companies’ do business with retailers across the country and are taking their beef to the street – or in this case to their counters and customers.
Interchange fees are hidden fees to the consumer and are set privately by credit card companies and charged to store owners every time that a customer uses a credit card. Transaction fees squeezed American businesses and their customers to the tune of $48 billion in 2008 alone. On average, an American store owner will actually pay nearly twice as much in transaction fees as they earn in profits, according to the National Association of Convenience Stores 2007 State of the Industry data.
“7-Eleven stores are operated by franchisees who represent more than 6,000 small businesses on Main Streets and in neighborhoods across America,” said Darren Rebelez, 7-Eleven, Inc. executive vice president and chief operating officer. “This petition drive is a grassroots effort to get a fair deal, spearheaded by small business owners in the communities where they live and with the customers they serve every day.
“Interchange fees are hurting individual small business operators, which represent more than 75 percent of 7-Eleven stores in the U.S.,” Rebelez said. “Because more and more customers are using credit cards for small purchases, there are small transactions where the operator actually loses money. The fundamental challenge is that in most business relationships, both parties have the ability to negotiate, and in this case we do not. ”
The petition drive takes place at all of 7-Eleven’s U.S. stores, and a copy of the petition will be prominently offered for signatures at every check-out counter. At the end of the petition drive, 7-Eleven expects to deliver one million signatures to Congress, calling on them to stop credit companies from charging unfair, hidden transaction fees and to pass legislation empowering retailers to negotiate with credit card companies.
“We’re not asking for a bailout, we simply want to negotiate in good faith with credit card companies in the same manner we negotiate with thousands of our other business partners,” Rebelez said.
American consumers pay among the highest transaction fees in the industrialized world. An average of $2 out of every $100 Americans spend goes to transaction fees, and for many businesses, transaction fees are now their highest non-labor cost, growing even faster than health care costs. As other countries have reined in excessive transaction fees in recent years, and the actual cost of processing credit card transactions has gone down, Americans are now paying triple the amount in transaction fees they paid in 2001, reaching $48 billion last year alone.
Rebelez added, “In the convenience industry, credit card companies come out the winner making more than twice the profits of the industry in total. To date, we have been unable to convince these companies to come to the table to negotiate fair fees. In order to survive and stay in business, our franchisees and licensees plan to make a significant, collective statement with this petition drive. With this unprecedented effort, Congress will hear the message of 7-Eleven’s small business owners and our customers across the country loud and clear,” he said.
The 7-Eleven petition drive will continue through Aug. 10. At the conclusion of the campaign, the top signature-gatherers from each of 7-Eleven’s seven U.S. geographical divisions will be flown to Washington to personally deliver the signatures to Congress.
About 7 Eleven, Inc.
7 Eleven, Inc. is the premier name and largest chain in the convenience retailing industry. Based in Dallas, Texas, 7-Eleven operates, franchises or licenses approximately 7,800 7-Eleven® stores in North sales of more than $53.7 billion. For 15 consecutive years 7-Eleven has been listed among Hispanic Magazine’s Hispanic Corporate Top 100 Companies that provide the most opportunities to Hispanics. 7-Eleven is franchising its stores in the U.S., and is expanding through organic growth, acquisitions, and its Business Conversion Program. Find out more online at www.7-Eleven.com.
WayTooHigh is on Twitter. Click here to follow. Due to the rapid updates in our battle against Visa and MasterCard and its member banks, we are replying on Twitter for more instant updates and posts.
In many countries around the world, electronic card-based payments have been replacing older types of payments at a rapid rate. In the United States, use of both debit cards and credit cards has been rising rapidly, while check volumes have been declining.
The increased use of electronic payment methods has generated a number of public policy debates. One prominent debate concerns interchange fees. This paper is intended to provide background for understanding the interchange fee debate. The paper describes the operation of a typical payment card system, presents a summary of the economic theory underlying interchange fees, and discusses various developments in the U.S. payment cards industry, as well as legal and regulatory developments abroad.
The paper concludes with a discussion and critical evaluation of a number of potential policy interventions.
Interchange fees typically involve a payment from a merchant’s bank to a card user’s bank for each debit card or credit card transaction, are determined at the network level, and are the same for all banks participating in a network. These fees are generally passed through to merchants by their banks and comprise a large fraction of the fees that merchants pay to their banks for processing card transactions. Card-issuing banks often use a portion of their interchange fee revenue to encourage card use by offering their cardholders rewards, such as cash rebates or airline miles, that increase with card use. In recent years, increases in interchange fee rates, together with growth in the volume of card transactions, have led to a dramatic rise in the total value of interchange fee payments and, consequently, in merchants’ cost of accepting payment cards. These cost increases have given rise to significant concerns among merchants.
[source: Electronic Payments Coalition, press release, June 4. Note: EPC is the advocacy component, controlled by credit unions, banks and payment card networks (MasterCard and Visa)].
Merchants Want Consumers to Foot the Bill for Their Costs of Accepting Credit and Debit
WASHINGTON, June 4 /PRNewswire/ — The Electronic Payments Coalition issued the following statement in response to the interchange legislation introduced today by Congressman John Conyers (D-MI):
“The Electronic Payments Coalition strongly opposes interchange legislation introduced today in the U.S. House of Representatives by Rep. John Conyers (D-MI) – a bill nearly identical to one that received broad bipartisan opposition last year.
This legislation is an attempt by giant retailers to make consumers pay for one of their business expenses – the cost of accepting credit and debit. It’s simple: merchants do not want to pay their fair share to accept debit and credit cards, and they want consumers to foot the bill.
If this legislation passes, American families will end up footing retailers’ bills when it comes to accepting debit and credit cards.
Merchants that accept credit and debit cards benefit from more sales, lower costs and greater profits. It is only fair that they pay a fee for this service.
At a time when American families everywhere are struggling to make ends meet, they shouldn’t be forced to pay more so giant retailers can profit at their expense. We understand that every business wants to find ways to cut overhead costs for valued services, but forcing consumers to pick up the bill for giant retailers just isn’t fair.
Consumers pay their bills. Giant retailers should pay theirs, too. On behalf of every American consumer who pays his or her own bills, the Electronic Payments Coalition urges Congress to oppose this harmful legislation.”
[source: MasterCard Worldwide press release, June 4]
Purchase, NY, June 04, 2009 – MasterCard said today that legislation introduced today by U.S. Rep. John Conyers (D-MI), by exempting merchants from antitrust laws, would take away the fundamental protections that these laws provide consumers. This would result in less credit availability, along with higher prices and reduced benefits when Americans choose to use their credit or debit cards. Antitrust laws are designed to protect competition and consumers, but this bill would have the opposite effect.
Conyers’ legislation, H.R. 2695, would give merchants a special exemption from antitrust laws enabling them to engage in anticompetitive and collusive behavior when establishing the fees and terms applicable to accepting payment cards. The bill is part of an organized merchant campaign to shift their card acceptance costs to consumers, and does not require merchants to pass on any savings to consumers if they succeed in lowering these fees.
When similar legislation was considered last Congress, it stirred considerable controversy and was only narrowly approved by a deeply divided Judiciary Committee. In addition, a wide array of organizations from non-profits to community banks and credit unions to minority small businesses voiced their opposition. The Department of Justice also expressed concern about the bill indicating that its antitrust exemptions “would appear to be the type of naked collusion that the antitrust laws condemn as per se unlawful because such conduct lacks plausible benefits to competition.”
Experience demonstrates that consumers lose when merchants no longer pay their fair share for the valuable benefits they receive from accepting payment cards. This is precisely what happened in Australia when the government reduced interchange fees. Although it cut costs for merchants, many Australian consumers now pay more for their payment cards and receive less in return as a result of the government’s intervention. Furthermore, there is no evidence that merchants reduced prices for consumers as a result of the government’s intervention.
Both merchants and consumers benefit from the ability to use and accept electronic payments, and in today’s free market system, each pays a share of the cost of the service. The benefits and the cost of card payment services are now shared between merchants and consumers but the merchants behind the Conyers bill seek to retain the benefits while shifting the costs to consumers.
Finally, MasterCard noted that any serious discussion of these issues should wait for the results of the Government Accountability Office (GAO) study ordered by Congress as part of the Credit CARD Act. Consumers stand to be severely damaged by government intervention and the findings of the GAO study may help avoid consumer harm that inevitably flows when merchants no longer pay their fair share for the benefits they receive.
On the MasterCard Worldwide website, the credit card giant has a posting and disclaimer about merchant interchange fees that is very interesting.
Interchange rates and fees are established by MasterCard and are generally paid by financial institutions called “acquirers” that provide card acceptance services to merchants. Acquirers pay these fees to card issuers. Interchange rates/fees are only one of the many cost components of the Merchant Discount Rate (MDR) that is established by acquirers and paid by merchants in exchange for card acceptance services.
Please note that MasterCard is not an issuer and has no involvement in acquirer/merchant pricing policies.
While MasterCard is not a card “issuer,” the giant credit card company is attempting to distance itself from the merchant interchange antitrust litigation by suggesting they are not involved in pricing policies. That is what this antitrust litigation is about - price-fixing. At the time the lawsuit was filed, which I am a lead plaintiff in, MasterCard was entirely owned by its member banks. While MasterCard may claim it is not involved with “pricing policies,” it was its board members (the banks) that collectively set the fees; many of those board members were also controlling Visa as well.
MasterCard’s response to Credit Card Far Fee Act is wrong. They (the credit card issuers) ALREADY are making less credit available, forcing higher rates and cutting benefits.
The Electronic Payments Coalition claims that the Credit Card Fair Fee legislation is aimed to help giant retailers. ScanMyPhotos.com is not a “giant retailer,” we are just like millions of other merchants and small businesses that are battling Visa, MasterCard and its member banks over illegal anti-competitive price-fixing of their merchant interchange fees.
WASHINGTON — NACS applauded the reintroduction of the “Credit Card Fair Fee Act,” bipartisan legislation introduced today by House Judiciary Chairman John Conyers (D-MI) and Representative Bill Shuster (R-PA) that seeks to address the more than $48 billion that Americans annually pay in credit card swipe fees.
Similar to legislation introduced last Congress by Chairman Conyers and supported by NACS, the bill, H.R. 2695, seeks to help level the playing field for retailers by giving them a seat at the negotiating table with banks to determine the fees assessed for every sale made by credit card, and ultimately reduce the costs of everyday goods for consumers.
Credit card swipe fees — called “interchange fees” by the big banks that set these rates — are a percentage of each transaction that Visa and MasterCard and their member banks collect from retailers every time a credit or debit card is used. These fees average about 2 percent in the United States, the highest rate in the industrialized world.
In 2008, credit card fees cost U.S. convenience stores $8.4 billion — compared to only $5.2 billion in store profits, according to NACS data. Almost all of these credit card fees are attributable to credit card swipe fees.
Currently, credit card swipe fees are set in secret by the banks and hidden from view. Raising these fees is how Visa and MasterCard — which together control more than 80 percent of the U.S. credit card market — encourage banks to issue more credit and debit cards.
“We are delighted that Congress is taking a closer look at these outrageous fees on the heels of its reform of the credit card industry’s abusive lending practices,” said NACS Chairman Sonja Hubbard, CEO of Texarkana, Texas-based E-Z Mart Stores. “Now it’s time to address the rest of the credit card industry’s abusive practices.”
“Right now swipe fees are fixed by the banks, hidden from the public and forced on retailers in a take-it-or-leave-it offer,” said Hubbard. “The Credit Card Fair Fee Act would allow retailers and the card associations to negotiate on equal footing, and we applaud this bipartisan effort to make it happen,” she said.
Over the last several years, the public, consumer groups, the Federal Reserve and Congress have scrutinized unfair credit card practices, policies and fees. Swipe fees have been the subject of multiple hearings in both the House and Senate under both the Republican and Democratic Congresses, and the banking industry has intensely lobbied against any reform — something it continues to do.
“It is simply outrageous that the banking industry — which received hundreds of billions of dollars in taxpayer-funded bailout money — continues to spread fear and misinformation in their lobbying efforts,” said Hubbard. “The bottom line is that unless Congress fully addresses how credit card swipe fees are determined, and why they are set in secret and hidden from consumers, the banking industry will have free reign to establish higher rates and create new hidden fees that continue to punish Americans,” she said.
Many individuals and businesses are gathering online to recommit in the repeal of the anti-marriage proposition 8 ruling in California.
If you are one of the 18,000 gay and lesbian couples who were legally married in the state, or are their friend or relative, let your Tweets send a powerful message and show your support for the freedom to marry. Following the California Supreme Court’s decision to uphold Prop. 8, which stripped same-sex couples of their right to marry, many people are taking a stand to win back marriage equality. For complete information on this important issue we recommend visiting: Equality California (@EQCA) and the Human Rights Campaign (@HRCBackStory).
WHAT TO DO: It is easy, free and just uses six characters. Beginning today, every @WayTooHightweet posting will end with “#18000″ hashtag symbol on Twitter to support marriage equality. Mitch Goldstone, editor of WayTooHigh.com and @WayTooHigh and Carl Berman are the lead plaintiffs, representing millions of merchants, in the first merchant interchange antitrust lawsuit against Visa, MasterCard and its major member banks from 2005 and are one of the 18,000 legally married gay couples in California.
Think of the millions of daily tweets, the solidarity and impact of having many messages end in “#18000.” The goal is to create a daily trending topic on Twitter by having “#18000” consistently rank and get noticed.
It will be our collective signature and allegiance to this important human rights cause and help open the hearts and minds by identifying the sweeping support for marriage equality.
Each time you tweet, please use the last six characters to show your support for marriage equality. Let others know what you are doing by retweeting (RT) this message: “We are using Twitter to take a stand and support marriage equality by ending each tweet with this hashtag: #18000″
NRF Urges Senate to Pass Amendment to Credit Card Reform Bill Making Cash Discounts Easier
WASHINGTON, May 12, 2009 – The National Retail Federation today urged the Senate to approve an amendment that would make it easier for retailers to offer discounts to customers who use cash or other low-cost forms of payment rather than credit cards that carry increasingly high processing fees.
“Retailers should be able to offer discounts to their customers in any legal way they choose without interference from the credit card companies,” NRF Senior Vice President for Government Relations Steve Pfister said. “By reinforcing retailers’ ability to offer discounts, the Durbin-Bond amendment will directly help reduce the prices that consumers pay for goods and services.”
Pfister’s comments came in a letter to members of the Senate, which is expected to vote this week on legislation that would block a number of abusive credit card industry practices such as applying interest rate increases retroactively to existing balances or “double cycle” billing, where interest charges are computed on outstanding balances from more than one billing cycle.
Senate Majority Whip Richard Durbin, D-Ill., and Senator Christopher “Kit” Bond, R-Mo., plan to offer an amendment to the legislation that would make it easier for merchants to offer a discount to customers who use low-cost forms of payment.
Current federal law allows merchants to offer a discount in such cases, but complicated credit card company rules make it extremely difficult to do so in practice. The Durbin-Bond amendment would add debit cards to cash and checks on the list of payments for which a discount can be offered, and would prohibit credit card companies from penalizing merchants for offering a discount, for the way in which they display discounts or for directing customers toward a discount payment option.
The legislation would also direct the Federal Reserve to gather and publish information on credit card interchange fees, other credit card fees and rules governing them.
“These rules are essentially hidden today,” Pfister said. “Both retailers and the public have a right to more complete information given the billions of dollars involved and the impact these fees have on the cost of everyday goods.”
The amendment is aimed at credit card interchange, a fee averaging close to 2 percent that Visa and MasterCard banks charge merchants to process the transaction each time a credit card is used to pay for a purchase. Visa and MasterCard rules effectively require the fees to be built into the price of merchandise, driving up costs for all consumers regardless of whether they pay by cash, check or plastic. The fees totaled $48 billion in 2008 and cost the average household $427, according to NRF estimates. Both numbers are three times the levels seen when NRF began tracking interchange in 2001.
The interchange fee varies from as little as about 1.5 percent to as high as about 3 percent, with “premium” cards offering rewards programs to the users carrying the highest fees. In addition to adding debit cards to the list of payments for which discounts can be offered, the Durbin-Bond amendment would allow merchants to offer discounts to customers who use low-fee credit cards rather than high-fee cards.
The National Retail Federation is the world’s largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry’s key trading partners of retail goods and services. NRF represents an industry with more than 1.6 million U.S. retail establishments, more than 24 million employees – about one in five American workers – and 2008 sales of $4.6 trillion. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations. www.nrf.com.
Very sad news today, as we learn of the passing of the extraordinary journalist and investigative Wall Street Journal reporter, John Wilke. Over the years, John and I exchanged comments on the banking and credit card industry. Click here for more info.
The National Retail Federation (NRF) and the Retail Industry Leaders Association (RILA) will merge into one trade association that cohesively represents millions of workers in the industry, reports the Baltimore Business Journal.
“This is an historic time for our industry. The challenges and opportunities before our members are unprecedented. Now is the right time to bring these associations together,” said RILA Chairman Robert Niblock, CEO of Lowe’s Co. Inc. and NRF Chairman Myron Ullman, CEO of J.C. Penney Co. Inc., in a joint statement.
The combined group, which is currently unnamed, will give members a singular and stronger voice on policy, communications, and public affairs issues in Washington, D.C.; access to events and conferences for members of both groups; focused educational and operational services for independent retailers; and a fully-integrated staff.
Both groups will undergo a due diligence process to complete the merger, which has already been approved by their executive committees. Both associations’ boards must recommend the merger, and both memberships must approve it. The groups expect the deal to be completed by the summer, says the Baltimore Business Journal, with further details to be nailed out in the coming months.
Roslyn, Va.-based RILA has 200 member companies — from Abercrombie & Fitch to Wal-Mart — and it represents more than $1.5 trillion in sales. It employs 30 people.
The Washington, D.C.-based NRF is the world’s largest retail trade association with about 2,500 members, including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drugstores, and grocery stores. It employs about 100 workers.
According to Canada NewsWire, MasterCard provided the following key points regarding interchange and debit and WayTooHigh.com replied below.
MASTERCARD CANADA: Canada has a well-functioning payments system that provides significant convenience and security to consumers and merchants. It has continued to operate effectively and drive commerce despite a global credit crisis. More than $240 billion in Canadian commerce is expedited on credit card systems annually.
WAYTOOHIGH: Nobody denies that payment cards are convenient and relatively secure. However, these benefits have nothing to do with interchange fees and do not confer upon issuing banks a blank check to extort supracompetitive profits from merchants and consumers through a hidden tax. Price-fixing is illegal!
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MASTERCARD CANADA: A merchant that processes a credit card transaction enjoys guaranteed payment even at a time of increasing consumer default rates.
WAYTOOHIGH: Merchants are not permitted by the Visa and MasterCard rules to separately negotiate for payment guarantee services. This should be a negotiable service subject to competitive forces. Merchants should have the choice of whether to purchase these services from the card networks, from a third party, or not at all. The card networks and issuing banks already include the risk of default in the interest rates they charge to consumers. There is no justification for forcing merchants to cover this cost.
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MASTERCARD CANADA: Merchants benefit from increased sales, improved payment efficiency, reduced cash handling, customer convenience and satisfaction, e-commerce facilitation, international purchase handling, automatic currency conversion and settlement, among other benefits.
WAYTOOHIGH: There are no studies supporting the assertion that card usage increases sales, reduces checkout time, or increases consumer satisfaction. These are simple advertising puffery. To the extent that some of these claims are accurate, they are neither an excuse to price-fix supracompetitiveinterchange fees nor a justifiable expense to force upon merchants without negotiation. Just look at the tricks MasterCard and Visa (both were controlled by thousands of the same member banks) They offer sweepstakes, but the less expensive PIN-based debit cards are ineligible. They charge merchants for the high-costing affinity (frequent flier reward) signature cards, but many consumers never cash in those rewards. And now, the credit card companies are taking back the accrued rewards if a cardholder defaults by a single day, some unscrupulous companies are even paying cardholders to close their accounts, thus also losing those rewards.
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MASTERCARD CANADA: Interchange is a fee that passes between acquirers (who handle card processing for merchants) and card issuers. Issuers receive interchange to compensate them for significant costs and risks borne in offering credit cards including interest-free periods, account management, credit losses, fraud protection and processing.
WAYTOOHIGH: Regarding the assertion that merchants don’t pay interchange, the rebuttal is that the merchant discount rate automatically includes the interchange fee. The rest is mere semantics. Also, why would they talk about benefits to merchants from interchange fees if merchants weren’t paying those fees? Remember: interchange fees were designed forty-years ago, when retailers used antiquated manual credit card imprinters (ScanMyPhotos.com used these way back in the early 1990’s. The fee was cost-based; remember those stacks of carbon-copy receipts? Write a check, which passes through the Federal Reserve network and the there is no clearing (interchange) charge. Use a Starbucks gift card, and there is no interchange fee. Use a shopping mall card, good at multiple merchant locations, and there is no interchange charge. Buy a gift card for any retailer at a supermarket and even though there is a network of payment mechanisms in place, there is no interchange fee. Use a PIN-based Debit card in Canada and there is no interchange fee. Use a credit card in Iceland and… you get the idea. As to the “issuer compensation” argument, many of those expenses should be borne by the consumer, not the merchant (e.g. free funding period). Furthermore, the merchant should not be forced to purchase these alleged services as a price-fixed bundle. These should be available separately and negotiably.
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MASTERCARD CANADA: MasterCard’s Canadian interchange rates remain well below those of other developed markets including the United States and below similar fees for American Express in Canada. A sampling of other countries with higher blended interchange rates than Canada include Argentina, Brazil, Germany, Greece, Indonesia, Japan, Philippines, Poland, Portugal, Switzerland, Turkey and Uruguay.
WAYTOOHIGH: The relevant comparison is not Canada v. Uruguay, it’s competitive v. anticompetitive. The fact that MasterCard’s supracompetitive interchange rates are not quite as inflated in other countries as they are in North America doesn’t render them legal. MasterCard and Visa boast 80% market power and are two giant cartels with, until recently, the same representatives on their board of directors. Collusion, greed, illegal price-fixing and hundreds of billions of dollars paid by consumers and merchants over the years is why this battle may be the largest antitrust case in U.S. history, and why the banks are engaged in a death-spiral battle against its two core customers – consumers and merchants.
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MASTERCARD CANADA: MasterCard receives no revenue from interchange.
WAYTOOHIGH: MasterCard remains a puppet of the issuing banks, who receive enormous amounts of revenue from interchange. How does MasterCard explain the term “Merchant Discount Rate?” So, where do their revenues come from, then?
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MASTERCARD CANADA: Consumers do not pay interchange fees nor merchant fees.
WAYTOOHIGH: As with the argument that merchants don’t pay interchange, MasterCard exalts form over substance. As a practical matter, merchants must build in their overhead costs into the costs of their products. Increasing interchange fees effectively increases the cost of goods just as would increasing the cost of the merchant’s rent or electricity. The nearly $60 billion dollars in merchant interchange fees in the U.S. last year came from somewhere! It is a hidden tax that ultimately, the consumers pay.
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MASTERCARD CANADA: Merchants who choose to accept credit cards pay to participate in exchange for the benefits received. The fee accounts for the multiple benefits received.
WAYTOOHIGH: The idea that merchants “choose” to accept credit cards is a myth. In reality, merchants must accept payment cards in order to stay in business. Furthermore, interchange is not cost-based. If it were, it would be far, far lower. Look at the European Union, where cross-border interchange is mandated to be cost based by law. For Ecommerce businesses, like ScanMyPhotos.com and millions of other online companies we are forced to accept Visa and MasterCard – they have an 80% market power over the industry. Their millions of dollars invested in TV commercials training consumers not to pay with cash is all the more reason why MasterCard and Visa are like drug dealers, they get consumers trained and then force them to use their products. Yes, force, and we can explain why.
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MASTERCARD CANADA: Merchants pay a merchant fee established by their acquirer, not MasterCard. Interchange forms a portion, but not all, of that merchant fee.
WAYTOOHIGH: Interchange accounts for the vast majority of the merchant discount fee and is non-negotiable. The merchant discount fee is always higher than the interchange fee, meaning that merchants effectively pay interchange. If the truth were otherwise, we’d have acquirer lawsuits against the networks and the issuers. Get real, it’s all about MasterCard. Until recently, MasterCard and Visa were just brands (trade associations) fully owned by the banks. Whether the fees go to the banks or the two giant credit card association, the same pockets were being enriched.
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MASTERCARD CANADA: MasterCard’s 2008 adjustment to interchange rates was the first in seven years. Some rates were reduced.
WAYTOOHIGH: Whether or not that’s true, it doesn’t change the fact that the rates are much higher than they would be in a competitive environment (assuming they’d exist at all). Some rates were 300% higher than in 1999. Without warning, millions of merchants receive a twice yearly letter explaining the new rates, just days prior to it taking effect.
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MASTERCARD CANADA: A merchant can obtain his MasterCard interchange rates via www.mastercard.ca. This information has been available for more than two years. [There is a now similar website in the U.S. with more than one-hundred pages of rate schedules].
WAYTOOHIGH: Only two years? Why was MasterCard so secretive before that? Regardless, the merchant has no way of knowing what the interchange rate will be at the time of sale and therefore cannot make an educated decision about whether to accept the card. There is no transparency, and those website rate schedules are unclear and confusing. If MasterCard was honest, they would easily post the exact interchange fee as part of every charge card receipt (right under the sales tax breakdown).
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MASTERCARD CANADA: When interchange was regulated in Australia, it led to reduced card benefits to consumers and there is no evidence that retailers passed on savings in reduced prices.
WAYTOOHIGH: To allege that a reduction in overhead costs for an entire country’s merchants would not result in lower prices is to allege a price-fixing conspiracy among all merchants. If so-called “cardholder benefits” were only available because of a price-fixing conspiracy between issuing banks, we should not lose sleep over the disappearance of those benefits when the conspiracy is busted up. The rule of law is what matters, not cardholder benefits.
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MASTERCARD CANADA: MasterCard Worldwide has a PIN-based debit payment solution – Maestro(R) – used by more than 652 million cardholders in over 100 countries.
WAYTOOHIGH: Perhaps, but that doesn’t justify the price-fixing conspiracy and it doesn’t justify forcing merchants to pay supracompetitive interchange fees. MasterCard and its issuers don’t get a blank check just because they provide some benefits. Banks would need to provide debit cards even if they didn’t get interchange fees. Otherwise, it would be like banks providing a checking account but no checks.
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MASTERCARD CANADA: MasterCard Canada is preparing to expand its global debit processing system in Canada where it would deliver compelling benefits to Canadian consumers and merchants.
WAYTOOHIGH: MasterCard is only increasing its market power so that it can continue to force supracompetitive interchange fees on merchants.
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MASTERCARD CANADA: Using Maestro, Canadian consumers could use debit all over the world.
WAYTOOHIGH: See previous two arguments.
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MASTERCARD CANADA: Accepting Maestro means Canadian merchants could accept international travelers’ debit cards.
WAYTOOHIGH: See above.
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MASTERCARD CANADA: MasterCard will provide technological advancements including greater security and fraud protections, innovations
WAYTOOHIGH: See above.
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MASTERCARD CANADA: MasterCard operates a global debit infrastructure with centralized operations that run 24/7. The system delivers significantly greater scale than Canada’s incumbent debit network. It has had zero downtime in more than seven years.
WAYTOOHIGH: See above.
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MASTERCARD CANADA: MasterCard will create competition in the Canadian debit market where it has never existed.
WAYTOOHIGH: MasterCard is not talking about competition for merchant acceptance, only “competition” for issuing banks, which has the effect of increasing interchange rates at the expense of merchants. Payment cards are a two-sided market (issuance and acceptance) and when MasterCard, Visa and the member banks talk about so-called “competition,” they’re never talking about the merchant side of the market.
According to Reuters, this is the list of credit card industry executives expected to attend the Presidential White House meeting on Thursday, April 23rd.
Larry Sharnak – American Express, Executive Vice President and General Manager, Consumer Cards
Richard Struthers – Bank of America, President, Global Card Services
Congress is trying to rein in other abusive credit card fees, but if they don’t address interchange, they’ll miss the biggest threat of allabout 5 hours agofrom HootSuite
Q: Why hasn’t MasterCard, Visa, Chase, CitiGroup, BofA, etc… not been shut down for collusion and credit card price-gouging. A: Dunnoabout 6 hours agofrom HootSuite
If mortgage rates continue to decline, interest rates being lowered, why are Visa and MasterCard’s credit card interchange fees soaring?about 7 hours agofrom HootSuite
Question for merchants: Credit card processing fees are too high because? Tweet your experience with interchange fees @wayTooHighabout 12 hours agofrom HootSuite
Visa / MasterCard’s long history of anticomptitive price-fixing corrupts smart biz thinking; the marketplace should control competition8:10 PM Apr 17thfrom HootSuite
Q: How can banks (MasterCard / Visa) cite “competitive pressures” regarding need for soaring credit card rates? They own the Monopoly board!4:31 PM Apr 17thfrom HootSuite
For balance, to represent the millions of merchants (consumers) at the White House credit card meeting consider inviting Mitch Goldstone4:03 PM Apr 17thfrom HootSuite
We will be Tweeting non-stop on planned White House meeting on Thurs w/ credit card execs and URGE INTERCHANGE DISCUSSION http://ow.ly/38Q13:59 PM Apr 17thfrom HootSuite
Peter Barnes, Senior Washington Correspondent at FOXBusiness reports on White House / credit card banking exec meeting – http://ow.ly/38Pt3:56 PM Apr 17thfrom HootSuite
4 Karey Wutkowski,Patrick Rucker at Reuters NOTE: Any White House meeting with credit card cos MUST discuss interchange = $60bln annual fee3:49 PM Apr 17thfrom HootSuite
MasterCard increased its network access and brand usage fee from 0.5 cents per transaction to 1.85 cents, a 270% increase http://ow.ly/2LYl3:35 PM Apr 17thfrom HootSuite
Other credit card fee reforms are necessary, but don’t forget about the ~$60,000,000,000 interchange tax on businesses / consumers2:25 PM Apr 17thfrom HootSuite
Did Visa and MasterCard create a non-competitive environment in which businesses cannot negotiate for lower interchange rates? #credit1:40 PM Apr 17thfrom HootSuite
RT @JeffCole53: …credit card companies are like crack dealers, they ruin people’s lives, and then want to sell them even more of the drug10:53 AM Apr 17thfrom HootSuite
Avg. American household paid $427 in credit card interchange fees last year. Total interchange fee revenues have tripled since 2001.9:35 AM Apr 17thfrom HootSuite
Anatomy of How Technology Should Reduce MasterCard and Visa’s Member Banks’ Credit Card interchange Fees – http://ow.ly/2HrO #congress #bank8:10 AM Apr 17thfrom HootSuite
Congress can’t fix the financial services industry without reforming huge, hidden credit card interchange fees. #banking #congress8:05 AM Apr 17thfrom HootSuite
Congress can’t fix the financial services industry without reforming huge, hidden Visa / MasterCard, member banks’ interchange fees7:45 AM Apr 17thfrom HootSuite
in 2008, Americans paid twice as much in interchange fees than in credit card late fees and three times ATM fees!7:30 AM Apr 17thfrom HootSuite
Citigroup revenues neraly doubled to $24.79 billion in JUST the 1st Q. How much was derived from excessive credit card interchange fees?7:19 AM Apr 17thfrom HootSuite
Merchant interchange fees cover reward points for credit cards; when banks force cardholders to close accounts, NO REFUND of paid rewards7:00 AM Apr 17thfrom HootSuite
Merchants (consumers) are paying the interchange credit card fees, which includes funding reward points, but banks keep when accounts closed6:55 AM Apr 17thfrom HootSuite
Retailers across the nation are calling for interchange independence UnfairCreditCardFees.com5:05 AM Apr 17thfrom HootSuite
innovations in electronic payments should increase effeciencies and lower fees, that’s how non-monopoly cartels work9:30 PM Apr 16thfrom HootSuite
Ecommerce companies, like ScanMyPhotos.com and millions of others are forced to accept Visa and MaterCard; they wield 80% market power.5:50 PM Apr 16thfrom HootSuite
Can’t fix the economy and help small businesses without addressing the banks anticompetitive credit card interchange fees4:52 PM Apr 16thfrom HootSuite
$2,100,000,000 Earned in JUST the 1st Q by JP Morgan Chase. How much derived from antiquated credit card interchange fees? http://ow.ly/33ha4:44 PM Apr 16thfrom HootSuite
JP Morgan Chase, named defendant in our merchant antitrust class-action lawsuit against credit card cos reports 1st Q earnings $2.1 bln4:42 PM Apr 16thfrom HootSuite
Using Twitter as forum to humanize and as advocacy channel in battle against Visa, MasterCard credit card fees #banks #credit WayTooHigh.com3:45 PM Apr 16thfrom HootSuite
Visa and MasterCard’s fees MUST be stopped. Now that the U.S. Taxpapers own banks, interchange should disappear3:40 PM Apr 16thfrom HootSuite
Visa and MasterCard, two ‘competitors’ announce price increases of nearly 300 percent at the same time in a recession? – http://ow.ly/2LYH3:35 PM Apr 16thfrom HootSuite
Little transparency for interchange fees that banks pay each other for each credit, debit card and ATM transaction made by customers.1:35 PM Apr 16thfrom HootSuite
Seeking transparancy of Visa asnd MasterCard interchange rates. There is transparacy in Europe and AUS.11:36 AM Apr 16thfrom HootSuite
Rules by Visa and MasterCard are more than 1700 PAGES. Can’t discount for cash, can’t surcharge. can’t print out on receipt the fees11:35 AM Apr 16thfrom HootSuite
Tweeting on local and national small business leaders discussing the looming threat to economy by hidden credit card fees – interchange11:35 AM Apr 16thfrom HootSuite
Fighting interchange fees as Visa and Mastercard continue to raise credit card merchant interchange fees payment expense up 800+% since 199511:32 AM Apr 16thfrom HootSuite
Seeing D.C. support. Petro industry had $3.4 bln in profits last year. $7.6 bln in credit card fees.11:31 AM Apr 16thfrom HootSuite
One PA family business saw $4.6 mln in credit card fees, $1.0 mln more than prior year. Fed Up with Visa and MasterCard11:30 AM Apr 16thfrom HootSuite
Impact of uncontrolled crdit card fees on supermarkets and Main Street is devistating. Retailers are “madder than hell” at credit card cos.11:28 AM Apr 16thfrom HootSuite
Interchange is a nationwide proble,. Supermarkets after tax profit is about 1-2%, thus LESS THAN COST FOR CREDIT CARD FEES = LOSS11:28 AM Apr 16thfrom HootSuite
PA state wide trade assn is talking. Own about 6,000 stores in PA. Over past 5 years, members said interchaneg is fastest growing TAX11:27 AM Apr 16thfrom HootSuite
POLAND ABOLISHED INTERCHANGE FEES. EU rate is about 0.30%. U.S. about 2.0% for credit card merchant interchange fees11:26 AM Apr 16thfrom HootSuite
ONLY ABOUT 13% is used to cover COST OF INTERCHANGE electronic payment fees. U.S. pays HIGHEST RATE in WORLD11:26 AM Apr 16thfrom HootSuite
WHEN YOU PAY CASH, low interchange fee card, FOOD STAMPS, CHECKS, cover high reward cards (signature affinity cards)11:25 AM Apr 16thfrom HootSuite
When you write a check. NO INTERCHANGE FEE. Mercjhant, however only gets ~98% back from credit card fees11:24 AM Apr 16thfrom HootSuite
CONSUMERS don’t know about interchange fees. About 2% per transactions. [about 100 separate rates].11:23 AM Apr 16thfrom HootSuite
FIGHT against unfair credit card fees. Seeking legislative action. Credit card interchange fees HIDDEN.11:23 AM Apr 16thfrom HootSuite
Taylor West intro: Lyle Beckwith, National Assn Convienence Stores (NACS) representing retailers nationwide11:22 AM Apr 16thfrom HootSuite
Stand by for live Tweeting from NEWS CONFERENCE [ Pennsylvania Retailers Urge Rep. Gerlach to Take Action] #Mastercard #Visa #banking11:18 AM Apr 16thfrom HootSuite
Apple is about to sell its 1 billionth iPhone app, but think of all those micro-payment credit card interchange fees on 99-cent orders!10:35 AM Apr 16thfrom HootSuite
@WayTooHigh will be Tweeting LIVE from today’s press event. #MasterCard #Visa #banking #charge #credit card #interchange #bank fees10:15 AM Apr 16thfrom HootSuite
Telephone Press Conference Calling on Rep. Gerlach to Stand with Pennsylvania Consumers and Small Businesses – Credit Card Fees9:49 AM Apr 16thfrom HootSuite
Local and national small business leaders will host a conference call with state reporters to discuss hidden credit card fees; interchange.9:47 AM Apr 16thfrom HootSuite
It’s not often that the credit card industry faces a defeat in D.C. until now, watch video http://ow.ly/2FLz #charge #banks #TARP #antitrust9:45 AM Apr 16thfrom HootSuite
Q: Why hasn’t MasterCard, Visa, Chase, CitiGroup, BofA, etc… not been shut down for collusion and credit card price-gouging. A: Dunno7:00 AM Apr 16thfrom HootSuite
RT @marktzk: USAir is unilaterally canceling my BofA Visa miles card and issuing a Barclay’s Mastercard instead. Looking for a new card now6:32 AM Apr 16thfrom HootSuite
Did you know that there are no electronic payment merchant interchange fees for check clearing?6:40 PM Apr 15thfrom HootSuite
RT @NiamhD: I really hate when you check your bank account and the back have taken notified fees that you weren’t notified about…4:50 PM Apr 15thfrom HootSuite
RT @EFFIE325: @EVERYONE I’M ANGRY AT CREDIT CARD COMPANIES…THEY ARE RUINING ARE SCORES BY REDUCING OUR LIMITS PEOPLE COMPLAIN TO CONGRESS4:27 PM Apr 15thfrom HootSuite
RT @SeanMiller: Does anyone else hate Bank of America? 8 Overdraft Fees? Now I’ve been on hold all morning. Sweet.4:26 PM Apr 15thfrom HootSuite
Question for retailers: Credit card processing fees are too high because? Tweet your experience with interchange fees @wayTooHigh4:22 PM Apr 15thfrom HootSuite
AARP Magazine: Protect Your Priceless Photos – Let a scanning company digitize your pics. It’s cheap and easy as can be – http://ow.ly/2YoL3:28 PM Apr 15thfrom HootSuite
in 2008, Americans paid twice as much in interchange fees than in credit card late fees and three times ATM fees!2:55 PM Apr 15thfrom HootSuite
Happy that credit card interchange issue is being noticed by Chris Dodd and D.C. helps establish his independence from banking industry12:08 PM Apr 15thfrom HootSuite
Did you Know: The actual cost to transact an electronic payment is a tiny fraction of the total fees collected8:40 AM Apr 15thfrom HootSuite
The credit card interchange fee = biggest tax you’ve never heard of. Nearly $2 of every $100 charged goes directly to credit card industry8:30 AM Apr 15thfrom HootSuite
Merchant interchange fees cover reward points for credit cards; when banks force cardholders to close accounts, NO REFUND of paid rewards6:50 AM Apr 15thfrom HootSuite
RT @Whynatte: The US Airways flight attendant literally spent 15 minutes trying to sell a VISA card to passengers over loudspeaker.7:37 PM Apr 14thfrom HootSuite
RT @SuziB777 So they are saying the economy is coming back please tell my bus. bank account isn’t seeing any comebacks,,,, higher more fees7:29 PM Apr 14thfrom HootSuite
RT @DebtLawyer: Credit card companies are inclined to settle with card holders who are experiencing a genuine financial hardship.6:50 PM Apr 14thfrom HootSuite
Thanks to Twitter, retailers and consumers have instant updates in the war against Credit Card Cos; Visa, MasterCard and its member banks3:42 PM Apr 14thfrom HootSuite
When Visa and MasterCard began, there wasn't Twitter to provide instant updates on their anticompetitive price-fixing.3:40 PM Apr 14thfrom HootSuite
RT @ms_elyse: just watched this documentary on Showtime called Maxed Out about credit card companies and debt. Everyone should watch it3:37 PM Apr 14thfrom HootSuite
in 2008, Americans paid twice as much in interchange fees than in credit card late fees and three times ATM fees!2:30 PM Apr 14thfrom HootSuite
The credit card interchange fee = biggest tax you've never heard of. Nearly $2 of every $100 charged goes directly to credit card industry2:30 PM Apr 14thfrom HootSuite
Merchants (consumers) are paying the interchange credit card fees, which includes funding reward points, but banks keep when accounts closed1:55 PM Apr 14thfrom HootSuite
Congress can't fix the financial services industry without reforming huge, hidden credit card interchange fees. #banking #congress8:05 AM Apr 14thfrom HootSuite
Congress can't fix the financial services industry without reforming huge, hidden Visa / MasterCard, member banks' interchange fees6:45 AM Apr 14thfrom HootSuite
DOUBLE TAXATION: MasterCard and Visa gift cards charge purchase fees ~$5.95 plus merchant pays interchange fees6:20 AM Apr 14thfrom HootSuite
Are Visa and MasterCard illegally fixing the fees charged to merchants who accept their cards? #banking #credit11:35 PM Apr 13thfrom HootSuite
Did Visa and MasterCard create a non-competitive environment in which businesses cannot negotiate for lower interchange rates? #credit9:40 PM Apr 13thfrom HootSuite
More bad news for MasterCard, Visa and the banking industry: Minnesota court ruled in favor of Al Franken in his 2008 Senate race9:20 PM Apr 13thfrom HootSuite
MasterCard increased its network access and brand usage fee from 0.5 cents per transaction to 1.85 cents, a 270% increase http://ow.ly/2LYg5:35 PM Apr 13thfrom HootSuite
Non interchange. win 1 for the entrepreneur, ScanMyPhotos.com named #16 - Web100.com Top 100 photography-themed websites http://ow.ly/2MxZ5:27 PM Apr 13thfrom HootSuite
Good bye credit card Interchange Fees!!! Court ruled in favor of Al Franken, one less (R) Senator5:12 PM Apr 13thfrom HootSuite
More bad news for MasterCard, Visa and the banking industry: Minnesota court ruled in favor of Al Franken in his 2008 Senate race5:10 PM Apr 13thfrom HootSuite
Breaking News: Franken Declared Leading Vote-Getter in Minn. Senate Race5:09 PM Apr 13thfrom HootSuite
Visa and MasterCard, two ‘competitors’ announce price increases of nearly 300 percent at the same time in a recession? - http://ow.ly/2LYx4:35 PM Apr 13thfrom HootSuite
Are Bank of America and Citicorp planning another fee hike and trying to get it done before the new legislation? Is it retroactive?4:30 PM Apr 13thfrom HootSuite
Visa, MasterCard credit card interchange fees are excessive and abusive, but their 80% market power = don't care4:05 PM Apr 13thfrom HootSuite
Visa and MasterCard's fees MUST be stopped. Now that the U.S. Taxpapers own banks, interchange should disappear3:50 PM Apr 13thfrom HootSuite
Did you know, when you use your debit Pin-based card as a credit card, your funds are removed just as fast, and retailers pay MORE3:50 PM Apr 13thfrom HootSuite
Q: Why hasn't MasterCard, Visa, Chase, CitiGroup, BofA, etc... not been shut down for collusion and credit card price-gouging. A: Dunno3:46 PM Apr 13thfrom HootSuite
Using Twitter as forum to humanize and as advocacy channel in battle against Visa, MasterCard credit card fees #banks #credit WayTooHigh.com3:31 PM Apr 13thfrom HootSuite
innovations in electronic payments should increase effeciencies and lower fees, that’s how non-monopoly cartels work3:30 PM Apr 13thfrom HootSuite
Banks are like drug dealers – they can’t resist Interchange profiteering; leading to billions in toxic creditcard debt : U.S. is bailing out2:40 PM Apr 13thfrom HootSuite
Avg. American household paid $427 in credit card interchange fees last year. Total interchange fee revenues have tripled since 2001.2:35 PM Apr 13thfrom HootSuite
Chase added a $10 monthly fee and increased the minimum payment from 2% to 5% for those who carry a large balance.2:35 PM Apr 13thfrom HootSuite
Other credit card fee reforms are necessary, but don’t forget about the ~$60,000,000,000 interchange tax on businesses / consumers2:25 PM Apr 13thfrom HootSuite
A leading argument to sustain soaring merchant interchange credit card fees is to cover the cost of affinity reward programs. The banks were passing along the frequent flyer reward costs to merchants, and thus consumers, who are the ones buying the merchandise.
Now that millions of cardholders are losing their accounts, those rewards are being terminated as well. When a cardholder is delinquent on their credit card bills by even a day, they risk losing all their accumulated reward points as well.
Well, what is it? If interchange fees are lowered, Visa and MasterCard’s argument is that consumers will have to pay higher fees. As it is, the banks are already raising rates, closing accounts and changing the terms with wanton disregard for their customers.
In baseball, it is easy to keep score – look at the scoreboard. In politics – read the polls. But, for interchange fees, run by the banking cartel, there is little notice, other than those bi-annual fee “adjustment” letters. As retailers continue battling against MasterCard and Visa – the two leading credit card associations with 80% market power and its member banks, it is also easy to keep score.
With nearly 1,300 postings on WayTooHigh.com- The Credit Card Interchange Report, we have yet to read any pro-interchange fee blogs that weren’t connected with the banking industry and their paid advocacy firms.
Well, there is always that one “pro consumer,” “pro competition” group that “enjoys the financial support of Visa,” but that really shouldn’t count. Where are the merchants championing 1.7% interchange fee rates, and challenging WayTooHigh.com?
Where are the U.S. retailers thanking Visa® and MasterCard® for charging among the highest rates in the world, while abroad, the interchange fees are 0.7%, 0.5% and even 0.0% – there are no interchange fee for debit PIN-based cards in Canada.
The reason for such silence?
Merchants understand they are being taken on a ride when cardholders present their affinity frequent flyer cards. The merchants, and thus the consumers are paying for these perks and the nearly $40 billion a year in interchange fees. Since we were the first to launch the merchant interchange litigation back in mid-2005, there have been no pro-interchange fee blogs that we are familiar with. That speaks volumes about our cause and the unfair fees.
Have you noticed the growing prominence of gift card kiosks filling up the end caps at many supermarkets and other retail locations? You can purchase gift cards for a variety of products, restaurants, attractions and unrelated shopping experiences.
Here is how gift cards work when you buy it at a supermarket or other large retailer:
You choose the value and brand, then their sales clerk rings up your order and validates the electronic payment card. Think of all the payment networks that are involved?There is an acquiring and issuing institution as the supermarket transaction is processed by a third party that pays the company issuing the card. There are added costs to print, merchandise and process the transactions. Yet, there are no added fees, unlike if you select a Visa or MasterCard branded gift card, where you pay an upfront fee of about $4.99 or higher, plus being forced to pay a monthly charge for non-use and other fees; think of Ticketmaster and all their extra charges.
The difference between the store electronic gift cards and those branded by Visa and MasterCard are they are without standard interchange fees. Those store-branded plastic gift cards are being transacted through an electronic payment network, but also without a monthly “maintenance” fee that Visa and MasterCard can separately impose.
Also absent are those mentioned fraud costs and other extra fees that Visa and MasterCard regularly present to try justifying their nearly 1.7% merchant interchange fee for transacting an electronic payment on the two leading credit card payment networks in the U.S., overseas, the interchange fee can be as low as .5% in Australia, .7% in the UK and zero in Canada for Pin-based debit card transactions.
I also don’t think regular store-branded cards charge a per transaction fee, which Visa and MasterCard can tack on of about 35-cents for each charge.
Many of the store gift cards can be used at multiple locations and even for ordering on their website for electronic payment transactions. Airline gift cards can be used at multiple airports, hotel gift cards can be used system wide at all their locations, yet they are without those interchange fees.
Micro balances on Visa and MasterCard gift cards are nearly a pure tax, as it is challenging to use those small amounts. And often merchants can’t process those small amounts. I tried it at a Chevron gas station, when I had a 35-cent balance and the card was denied. However, look at Starbucks and thousands of other merchants who will give you cash back. In California, it is a state law that when asked, stores must give shoppers cash back when the balance on the store gift card falls below ten dollars.
The moral is that retailers understand that gift cards are a benefit and provided value added sales, while the banks use credit and debit cards as a decades-long scheme to take on added fees just because they can. As more attention is being publicized on this issue, Visa and MasterCard’s monopolistic 80% market power and cartel-like control are angering many.
Although the letter was dated in mid-March, ScanMyPhotos.com, like millions of other merchants received the new rate schedules just days before the April 1st increase. As is a tradition, twice each year, we regularly receive these letters announcing the new Visa and MasterCard merchant fees.
Even as the lead plaintiff in a merchant interchange antitrust suit against Visa, MasterCard and its major (still solvent) member banks, I have no clue what the new rates are. Now, they just direct you to a website to review the merchant interchange fee rates.
VISA USA INTERCHANGE RATES (The new, April 1, 2009 rates, although in effect are unknown, as they have yet to be updated as of 7:30 pm (PDT, Wed, April 1, 2009)
WASHINGTON — New transaction fee rate increases announced by credit card companies Visa and MasterCard are slightly under 2 cents per affected transaction, yet are expected to raise more than $600 million in revenues, according to a report by DigitalTransactions.com
MasterCard will increase its “Network Access and Brand Usage Fee” April 17, from 0.5 cents per transaction to 1.85 cents—a 270 percent increase—while Visa will increase its “Acquiring Processing Fee” from 0.5 cents to 1.95 cents—a 290 percent increase, with additional fees possible, according to NACS—the Association for Convenience and Petroleum Retailing, which opposed the proposed hikes.
“This begs the question: How can two ‘competitors’ announce price increase of nearly 300 percent at the same time in a recession?” NACS Senior Vice President of Government Relations Lyle Beckwith said in a statement. “From what we’ve seen with credit card interchange fees, the answer is obviously that two competitors with excessive and abusive market power can do what they want.”
Merchant-acquiring experts expect merchants to bear the cost of these fees because acquirers will simply pass them through to clients. “The ones we’ve talked to aren’t too excited about it,” an acquiring executive, who asked for anonymity, told the Web site. “It’s one of the bigger fee hikes.”
In a statement Visa told DigitalTransactions.com: “Visa Inc. regularly reviews its pricing, as any business would, and makes adjustments where appropriate depending on such factors as the value delivered to clients and the need to be competitive. Over the years, Visa has become a symbol of international acceptance, reliability and convenience, based on its commitment to provide superior value to clients. These clients, in turn, are able to offer competitive products and services to their customers. Financial institutions set their pricing to cardholders and merchants.”
In 2007, credit card fees cost convenience stores $7.6 billion, with the largest component being credit card interchange fees, which are a fixed fee and a percentage of each transaction, according to NACS. These fees average 1.8 percent in the U.S., which has the highest interchange rate of any industrialized country.
“The credit card fees that U.S. retailers pay are outrageous,” Beckwith said. “These newly announced fee increases are beyond outrageous. At a time when small businesses are feeling the economic pain of the recession, it is unconscionable that Visa and MasterCard can give themselves their own ‘bailout’ by slapping 300 percent increases on their fees.”
A coalition of retailers today launched a campaign to lobby Congress to require credit card companies to negotiate with retailers in an effort to lower the “interchange” fee, averaging 2 percent, that retailers pay on each credit card transaction.
The Merchants Payments Coalition launched the campaign this morning during a telephone press conference with representatives of the National Retail Federation, the Food Marketing Institute, the National Grocers Association and the National Association of Convenience Stores.
According to Reuters, next week the US Senate Banking Committee will meet to discuss new credit card legislation.
Areas of focus will be on prohibiting credit card solicitation to people under 21, and the current ability to change and terminate a cardholders account for any reason and at any time.
According to Reuters, “the Government Accountability Office, a congressional audit group, to study the effects of so-called interchange fees on consumers and merchants. Interchange fees are the cost for transacting purchases using an electronic payment system operated by Visa Inc and MasterCard Inc. In the House, the Judiciary Committee has been examining the issue.”
Another reason why interchange fees don’t make “cents” for consumers, but dollars for Visa, MasterCard and its thousands of [still solvent] member banks.
Part of MasterCard, Visa and its member banks’ argument in support of merchant interchange fees is to fund their marketing rewards programs. Retailers are taken on a ride every time a cardholder receives “free” miles for electronic payment transactions. This expense should not be the burden of merchants and cardholders, but an expense covered by the electronic payment networks and its member banks.
Today, we learn that charge card companies are encouraging some cardholders to terminate their relationship. These credit card companies are providing cash incentives, but you may lose your accumulated membership reward points. Default, delay a payment, or cash out, and you risk losing all those reward benefits, even those retailers were already charged for covering these spiffs. If that is the case, shouldn’t the banks and card companies also refund the retailers for overcharging to cover these unused rewards?
Separately, as more information on Washington’s economic stimulus plan is analyzed, it is becoming clearer that entrepreneurs, which represent much of our nation’s innovations and economic strength is left out from benefiting by the cash infusions. One immediate way to jump start the economy is to force MasterCard, Visa and its member banks to terminate its merchant interchange fees. Now that taxpayers own vast equity in the banks (which own nearly half ownership in MasterCard and Visa) this is the opportunity to require the banks to act now.
This nearly $60 billion dollar expense accounts for nearly 1.7% of all sales when credit cards are used. This plan would immediately return what in many cases is the difference between profits and losses back to retailers and American consumers.
A solution to immediately create bank-funded stimulus package that instantly gets capital into the hands of small businesses and consumers – end Visa and MasterCard’s and its member banks credit card interchange fees.
During this unprecedented global financial meltdown , the United States and its citizens now own a sizable share of major financial institutions. The question is, why aren’t we demanding that our ownership stake in the banks force them to eliminate those unfair and anticompetitive merchant interchange fees?
To help win over credibility among merchants and consumers, the banks, along with MasterCard and Visa should be forced to move forward and reevaluate their long standing unbridled market power - every time a consumer uses an electronic payment credit or debit card. We own the banks and we should be running them too.
The crippled banking institution has achieved what MasterCard and Visa warned (about themselves) in their SEC IPO filings – they are becoming insolvent. The nearly $60 billion in annual merchant interchange fees and Visa and MasterCard’s merchant discount money grab must end and now is the time.
Think of what these billions in erroneous fees could do if put back in the hands of retailers and consumers, rather than funneled to Visa, MasterCard and its mismanaged member banks?
The banks are failing us. The government bailout proceeds are being blanketed to many far reaching overflowing pockets, like the scores of law firms that are battling millions of retailers over the merchant interchange fee antitrust litigation. It has now been about four years since launching the class-action antitrust litigation; millions of dollars have been spent to defend this unfair fee on Americans, but now that we are paying the bank’s legal fees and effectively suing ourselves, it’s time to draw more attention to and ask more questions.
[The U.S. government injected 45 billion taxpayer dollars into Bank of America and Citigroup, two of the named defendants in the merchant interchange litigation. And, more than $400 billion to cover the banks' losses - $60 billion would go a long way to cover these fees].
Calling it like it is, the banks should be Twittering and emailing their employees, rather than treating them to junkets to Las Vegas.
Today’s Las Vegas Review-Journal has an article [Obama draws ire over Vegas junket criticism, Feb 11] by reporter Benjamin Spillman that quotes Phil Cooper, CEO of Encore Productions, Chuck Bowling, executive vice president at Mandalay Bay, Las Vegas Mayor Oscar Goodman, Andrew Pascal, president of Wynn Las Vegas and Mitch Goldstone, president and CEO of ScanMyPhotos.com.
Excerpt:
Mitch Goldstone of the firm ScanMyPhotos agrees. Goldstone annually holds several business events in Las Vegas and says he gets great deals for his Irvine, Calif.-based company. “It is a brilliant location,” Goldstone said. But he added his remarks don’t apply to bailout-taking banks. “The only ones who should not be in Las Vegas are those with taxpayer dollars” he said. “They should not be anywhere.” The decision to move the Goldman Sachs event from Las Vegas to San Francisco is even more laughable than just holding it at the original destination. “They should be Twittering and e-mailing and using the Internet and not going to San Francisco,” Goldstone said.
Lots of WayTooHigh.com readers today and many from Wells Fargo too. Did they surf our site on their own time, or bill American taxpayers to read about their egregious New York Times ad campaign? Whoever I discussed the ad with equally asked the same question: why didn’t Wells Fargo’s CEO John Stumpf just sent an email or Twitter his staff to let them know just how much he values his ”team.”
Over a span of four years, WayTooHigh.com has regularly been read and analysed by the credit card giants, its member banks, teams of legal council, and many others around the world. This message should therefore get noticed. It is one more review of the banks’ brazen market power and disconnect from its customers.
Today, Wells Fargo CEO, John Stumpf, invested a significant sum to buy a full page advertisement in the national edition of The New York Times.
How much did that cost?
Nice message, Mr. Stumpf, if you were paying for it, but, I paid for it! Along with millions of other U.S. taxpayers, through the U.S. Treasury Capital Purchase Program, we covered your message that Wells Fargo employees are deserving of praise and recognition.
Couldn’t you just have sent them an email or Twitter them?
It might have actually been less money to just send your “hardworking employees” to The Wynn Resort in Las Vegas [ "Wells Fargo Wants to Party, but Maybe Not," NYT, Feb 3], rather than paying for this ad. After all, the global economic catastrophe that you are partly to blame for, has one benefit, super cheap Vegas hotel rooms. You could have sent about 300 employees to the Wynn Resort for two nights for what you (I) paid for this advertisement. Last month for CES, I stayed at The Encore – Wynn property in Las Vegas – for $169 a night, thanks partly to the banking industry’s mismanagement and destruction of our economy.
You’ve come a long way from just being accused of illegally fixing the prices for the antiquated and nearly $60 billion annual merchant interchange fee gimmick of which Wells Fargo is a member bank and named defendant.
1) Merchants’ interchange fees have risen even though network fees are decreasing.
2) The credit card companies have an unbridled ability to raise fees at will. Member banks of the credit card associations are in our opinion, co-conspirators.
3) From 1999 – 2005, the PIN debit fees rose 267 percent.
4) In the early 1990s there were about a dozen separate interchange fees, today there are nearly one hundred. These interchange fees seemingly always increase and have not decreased. 5) Visa and MasterCard fix uniform credit card interchange fees, which are agreed to and used by all Visa and MasterCard banks.
6) This collective horizontal price fixing violates Section 1 of the Sherman Act.
7) Even the cost for paying out reward benefits to affinity card holders has declined and is getting more stingy. Ex: American Airlines now charges a fee of $250 each- way to cash in frequent flier mileage to upgrade from coach to business-class on international flights. This is an audacious game few understand.
The credit card associations are extending loyalty and kick-back programs to consumers which few can actually figure out the value of. If merchants could even figure their actual cost – from nearly one-hundred separate rates – and listed the actual Interchange fee as a separate item on the customers’ receipt, people would be less likely to want frequent flier mileage rewards once they understood how much more they are actually paying for those perks.
9) This is a hidden tax on consumers and merchants.
10) With today’s technologies, the interchange structure is now inefficient. In our opinion, consumers don’t benefit and merchants don’t benefit.
11) Part of this inefficiency relates to credit card companies where only 1 in 2000 of their mail solicitations lead to signing up just one new cardholder. Credit card companies mailed out about 5.24 billion mail solicitations in 2005yet only 4-10ths of 1% reply. This means 5 billion pieces of mail are garbage. What other industry has such huge profits that they can afford to throw away 5 billion pieces of junk mail every year?
12) Why does it cost so much to use a credit and debit card, rather than with writing a check? There is a zero interchange fee for checks, the money goes directly from the consumer to the retailer. Example: The checking system works without any of these fees. The difference between credit card and check fees are also a study in competition; banks impose various fees on account holders and on merchants for writing and processing checks, from zero to a variety of rates in order to stay competitive.
13) Today, the card associations have lower costs and even no float expense when debit cards are used. With technology, there is less fraud and no need for paper receipts. Processing and telecommunication fees are lower and now automated. With interest rates so low for so long, even the cost of the the regular float has declined.
14) Merchants shouldn’t have to cover the cost for card holder credit risks. Defaults by card holders should not be paid by merchants, but rather, issuers should be more careful who they extend credit to.
15) There is no ability to bypass the credit card network. For instance, ScanMyPhotos.com(a lead defendant in the merchant interchange litigation) operates an international online photo scanning and digital imaging service where all online orders require transactions to be completed with credit cards, this parallels the entire online retail segment.
16) Part of the proof that the card association and their interchange fees are a monopoly is that even though rates continue to rise, merchants are forced to use their products.
17) Trickery and confusion. Even though there are lower interchange rates for debit cards, it is increasingly more difficult to distinguish debit cards. It’s difficult to see the “debit” or “check card” reference and retail clerks can easily ring up the sale as a charge card, thus paying higher rates.
18) When consumers present merchants with faulty magnetic strips on their cards it cannot be swiped by the card reader. This causes merchants to then manually enter the number, which costs more even though there is an identical risk to the card association. But, the charge for manually entering a card is excessively higher, and even higher if the address and zip code are not entered.
19) In 1994, the Visa and MasterCard interchange fees on a $100 transaction for the largest non-supermarkets was about 1% and 1.33%, today it is about 1.70% and higher. For the smallest non-supermarket merchants, the charge was about 1% and 1.31% in 1994; today it is higher too.
20) There is no added direct value or benefit to the merchant by accepting an affinity card or any other card, such as the Visa Signature card.
21) Australia, the European Union and the United Kingdom are samples where interchange regulations work. The U.S. is the only market where interchange fees are increasing. Canada, for example, has a zero interchange fee for debit cards and their PIN Network is the most popular way to transaction business. U.S. Interchange fees are 3-times higher than in Australia and two-times higher than in the UK. Australia is a great example – since the nation regulated these rates, merchants paid $500 million less. This translates into lower costs to consumers. The Australian CPI actually declined and there was an increase in card usage.
22) The only leverage merchants have is in choosing their payment processor. Those fees are highly competitive, yet the Interchange fees cannot be negotiated.
23) Because banks are now permitted to issue Amex and Discover cards, MBNA and Citibank plan to issue Amex cards, which means, merchants will be flooded with the higher costing premium cards (this translates into a 50% increase in costs from about 140 bp [basis points] to 210 bp. I anticipate they will then convert their classic cards to higher priced “signature” “affinity” and “business” cards.
24) The argument by Amex was that their card holders spend more money. Perhaps this is based on buying diamonds and luxury items, but when you are at a convenience store, the amount charged from a Visa card is typically the same as for Amex. As MBNA and Citibank switch from Visa to Amex, they are appealing to the same group of cardholders with the same spending patterns.
25) How can groups like “Americans for Consumer Education and Competition” be expected to be objective? [(ACEC was financially supported by VISA USA]. They suggest merchants want to pass along the interchange fees to consumers. The fact is that this litigation has nothing to do with “shifting’ costs from merchants to consumers, but rather it is about reforming the system so that competition works and will drive total costs down so that both merchants and cardholders have lower costs.
[source: WayTooHigh.com, originally posted Nov, 2005]
MasterCard Inc (MA.N), the world’s second-largest credit card network, reported better-than-expected quarterly earnings on Thursday, sending its shares up 4 percent in premarket trading.
Visa’s earnings are up 35%, when the global economy is depressed. The credit card giant even had a 17% increase in its revenues. This at a time when merchants are going bankrupt and some of the credit card association’s member banks are defaulting or being nationalized by the U.S. Government, yet both credit card companies are shining.
Why?
During the past four years, along with many others, I have been exhaustively blowing the whistle and calling attention to the banks anti-competitive and illegal price fixing of the merchant interchange fees. As the nation looks for ways to remedy the fiscal crisis through tax refunds and billions in new spending, the best and most instant solution is to force MasterCard and Visa to end its unbridled market power and cease its interchange fees, which is nothing more than an antiquated pricing model that has little relevance today. The nation could instantly benefit by putting the nearly $60 billion in fees paid by U.S. consumers and merchants back into our pockets, rather than into the highly mismanaged and arrangant banks’ vaults. Forget the banks’ Vegas trips and charter jets, look instead at the interchange fees for real savings. Redirecting the interchange fees and Visa and MasterCard’s collusive merchant discount fees could immediately help the economy recover.
After reading today’s House Financial Services subcommittee meeting with Harry Markopolos, a private fraud investigator from Boston, I was reminded why this case is so important. Just as Mr. Markopolos blew the whistle nine years ago and nobody listened, I began blowing the whistle and calling attention to the illegal price fixing and anti-competitive credit card fees back in early 2005. Today, the class-action litigation is nearing class certification and it remains as perhaps the largest antitrust litigation in U.S. history.
I see the role of the lead plaintiffs in this litigation as a cross between Erin Brokovich and Harry Markopolos, and we will prevail.
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During the past few weeks, we have tempered our discussions of the failing bank, along with MasterCard and Visa’s roll in devastating the global economy. One issue we are not reading, amidst the record job losses and banking mismanagement is why the credit card giants aren’t lowering their anticompetitive merchant interchange fees?
At our company, we are reaping strong returns, due to our innovative new photo imaging business model at ScanMyPhotos.com. We reinvented our business, while Visa and MasterCard simply charged more for supporting and antiquated pricing model as its technology leaped ahead of what was once an analog payment network.
Their actions help fuel our amplified commitment for calling attention to Visa and MasterCard’s unfair merchant interchange rates and its member banks continued monopoly of charging nearly $60 billion in antiquated annual interchange fees when you use a credit and debit card.
Other businesses are struggling to survive, but we are more determined than ever to win this litigation. Many member banks have failed and some CEO’s have been dismissed. However, their allegedly illegal price-fixing and ruinous financial burden on merchants and consumers continues.
Today, we learn that Well Fargo, a named defendant in the multi billion dollar merchant interchange litigation has decided that The Wynn Hotel in Las Vegas is not the place to host their upcoming event for their home lending unit. The same for Citigroup (another named defendant) for trying to spend $50 million of taxpayer dollars on a corporate jet.
As millions of jobs are lost and our economy rests on the brink of collapse, the least MasterCard and Visa can provide is immediate relief from their anticompetitive and illegally-based price-fixing scheme. If Denny’s can give away free breakfasts after the Super Bowl, think of the marketing grist that MasterCard and Visa would gain from saving retailers and consumers billions of dollars.
Visa Europe expects to reach a deal with European Union competition authorities on its cross-border transaction fees this year, the payment card company said on Tuesday. Read more.
There are just hours remaining until Visa, MasterCard and their member banks face a new administration in D.C. To kick things off, this article was published today by Digital Transactions Magazine. Let’s remember that this issue is all about illegal, anticompetitive price fixing and unbridfled market power.
For other news on ScanMyPhotos.com, visit our “In the News” updates, including recent coverage and interviews on Fox Business News and USA Today. See Twitter.com/ScanMyPhotos.comfor more updates too. We are expecting several local and one national network news program to broadcast our Inauguration Day events at our retail and Irvine, CA location.
I couldn’t even invent this journey through a mythological abstraction from reality, so here it is in MasterCard’s® own words. To counter these assertions, see the below more than 1,200 unique WayTooHigh.com postings over the past nearly four years.
With all the unprecedented mismanagement by the nation’s banks, including thousands of Visa and MasterCard member banks which collectively owned both giant credit card associations, are TARP government funds being used to bailout Visa Inc? From today’s press release, we learn that Visa Inc. ”has deposited $1.1 billion into the litigation escrow account…” Where did this enormous capitalization come from? With little oversight, is it possible that the government’s TARP bailout funds helped pad Visa’s litigation account?
Transaction has the effect of a $1.1 billion Class B share repurchase
SAN FRANCISCO, Dec. 22 /PRNewswire-FirstCall/ — Visa Inc. (NYSE: V – News) today reported that it has deposited $1.1 billion into the litigation escrow account previously established under the company’s retrospective responsibility plan (the “Plan”).
Under terms of the Plan, when Visa funds the litigation escrow its U.S. financial institutions, the sole holders of Class B shares, bear the expense via a reduction in their as-converted share count.
“This transaction not only adds the necessary funds to our litigation escrow, but effectively acts as a $1.1 billion Class B share repurchase program,” said Joseph Saunders, Visa’s chairman and chief executive officer. “It has always been our stated intent to return excess cash to our shareholders in the form of dividends and share repurchases. We are obviously pleased that our strong financial position and excess cash flow allows us to do this.”
The Plan was established at the time of Visa’s initial public offering. It provides coverage and a payment mechanism for judgments or settlements in specific U.S. legal cases, protecting Visa and its Class A and Class C shareholders from any direct losses.
The deposit of the funds into the escrow account reduces the conversion ratio applicable to Visa’s Class B common stock outstanding from 0.7143 per Class A share to 0.6296 per Class A share. On a converted basis, the 245,513,385 Class B shares currently outstanding are equal to 154,566,658 Class A shares of common stock.
The deposit of loss funds has the effect of a repurchase of 20,800,824 Class A common share equivalents from the Company’s Class B shareholders. The amount paid per share represents the volume weighted average price (VWAP) of the Company’s Class A common shares for the 15-day trading period December 1, 2008 to December 19, 2008.
About Visa: Visa operates the world’s largest retail electronic payments network providing processing services and payment product platforms. This includes consumer credit, debit, prepaid and commercial payments, which are offered under the Visa, Visa Electron, Interlink and PLUS brands. Visa enjoys unsurpassed acceptance around the world and Visa/PLUS is one of the world’s largest global ATM networks, offering cash access in local currency in more than 170 countries. For more information, visit www.corporate.visa.com
Contacts:
Jack Carsky or Victoria Hyde-Dunn, Investor Relations
Visa Inc.
Tel: +1 415 932 2213
E-mail: ir@visa.com
Paul Cohen or Sandra Chu, Media Relations
Visa Inc.
Tel: +1 415 932 2564
E-mail: globalmedia@visa.com
Visa Inc, the world’s largest credit card network, said on Monday it set aside an additional $1.1 billion to cover legal expenses.
Before becoming a public company in March, Visa set aside $3 billion to cover lawsuits.
Under the terms of its initial public offering, Visa’s bank shareholders agreed to have their stake diluted to fund litigation in order to save other shareholders from direct losses from lawsuits in certain U.S. court cases.
Visa and MasterCard’s member banks have unfairly forced millions of merchants and America consumers to spend nearly $60 billion during the past year in unjustified and unfair credit card merchant fees. In today’s highly advanced technological society, the interchange fees are as antiquated as were those manual credit card receipt imprinters.
But, this is only the beginning. Take a look at how easy the banks (which owned Visa and MasterCard – the two giant credit card associations with 80% market power) have it when securing billions more from us, the citizens who authorized the TARP $750 billion bailout.
Click here to see if you too can get in on this extraordinary boondoggle. Just rename your business as a bank holding company, or, add the name “Wall Street” as we did in parody.
The following is the actual application. If you thought it was easy for Visa and MasterCard’s member banks to wield their monopolistic power and force retailers and consumers to pay about 1.7% for most electronic payment transactions, look at this. It seems that applying for a charge card with your local retailer demands more questions and due diligence than this. It will take you longer to fill out this standard auto lease areement, than the below application, unless you have an “authorized designee” who can do it as your proxy.
The Federal Reserve lowers interest rates to near zero, oil prices plunge 60% in under a year, Chrysler shuts all its U.S. plants for 30-days, yet merchant interchange rates and Visa and MasterCard’s discount fees stay sky high. Why?
Now we learn that Treasury Secretary Henry Paulson has a plan to save Christmas by using taxpayer funds to bolster the credit card market. But before we shower taxpayer dollars indiscriminately at every down-at-heel, ragamuffin credit card lender, we should take a hard look at how they got themselves into so much trouble. Just throwing money at the credit card industry without requiring a systemic change in how it does business is merely asking for a repeat of the crisis.
The card industry’s business model is the heart of the problem and needs to change. Just as with subprime mortgages, the credit card business model creates a perverse incentive to lend indiscriminately and let people get into so much debt they can’t pay it back.
Card issuers make money on every credit card transaction, regardless of whether the consumer pays interest. The bank that has its name on the card receives around 2% of every transaction in a fee paid by the merchant (and passed on to all consumers in the form of higher prices). This is called the interchange fee. The banks will collect about $48 billion in interchange fees this year.
Because interchange is based on transaction volume, it creates an incentive for banks to issue as many cards as possible, regardless of the creditworthiness of the borrower. So, by creating a huge revenue stream unrelated to interest, interchange encourages banks to engage in reckless lending – and virtually every credit card loan is a “liar loan” with no income verification.
In the case of credit card issuers, however, ramping down antitrust enforcement is a mistake—a merger is forever and the cost of increased concentration…. Click here to read more.
From The Wall Street Journal on Dec 8th, by reporter Lynn Cowan [see link], is an article about executive pay. The executive excesses at MasterCard and Visa could be further signs that the two giant credit card cartels are generating massive revenues from its discount interchange fee and other monopoly-generated charges.
Excerpt:
MasterCard’s final prospectus in May 2006 contained 15 pages describing how much and what types of compensation executives were paid, but wasn’t very specific about how bonuses or incentives were determined, listing 18 possible goals, from stock price to revenue, that could be used.
Two years later, rival Visa’s March 2008 IPO documents contained an executive compensation section that totaled 28 pages, and included how its executives’ pay compared to peer companies; the names of those peers; and what measurements, such as net income, that are used to determine executives’ bonuses.
MasterCard wasn’t spared forever. After the rule took effect, its next proxy statement’s executive-pay section had doubled in size to 30 pages, and contained much of the same level of detail that Visa provided.
For example, instead of listing 18 possible goals, it specified that net income and return on equity targets would be the basis of cash bonuses.
Visa declined to comment.
MasterCard spokesman Chris Monteiro said the disclosure process “certainly took time and effort” but resulted in a “transparent and detailed view” of the company’s compensation structure.
The greedy banks and auto industry execs failed their shareholders and Americans. Their mismanagement is being rewarded with billions, or is it trillions in free money?
Everything has turned upside down.
Accountability is irrelevant and Washington lobbyists are all powerful. Look at today’s Merill Lynch & Co assessment that oil might soon be trading at just $25 a barrel, according to a Bloomberg report. If gas can plunge from nearly $150 to under $50 in just a few weeks, due to the economic seizure, why are the Visa and MasterCard merchant interchange fees – fueled by its member banks – continuing to rise?
As every sector of the American economy lines up to sit on Congress’ lap and ask for an early Christmas present, things aren’t looking so good for American consumers. The visions dancing in their heads are not of sugar plums, but of unemployment, debt, and foreclosures. They’re wondering how they are going to pay for Christmas presents.
Now we learn that Treasury Secretary Henry Paulson wants to save Christmas, by using taxpayer funds to bolster the credit card market. But before we shower taxpayer dollars indiscriminately at every down-at-heel, ragamuffin credit card lender, we should take a hard look at how they got themselves into so much trouble. Just throwing money at the credit card industry without requiring a systemic change in how it does business is merely asking for a repeat of the crisis.
The card industry’s business model is the heart of the problem and needs to change. Just as with subprime mortgages, the credit card business model creates a perverse incentive to lend indiscriminately and ignore delinquencies. Card issuers make money on every credit card transaction, regardless of whether the consumer ultimately pays a finance charge. The issuer receives around 2% of every transaction in a fee paid by the merchant (and passed on to all consumers in the form of higher prices). This fee is called the interchange fee. Card issuers will collect about $48 billion in interchange fees this year.
Because interchange is based on transaction volume, it creates an incentive for banks to issue as many cards as possible, regardless of the creditworthiness of the borrower. By creating a huge revenue stream unrelated to credit risk, interchange encourages card issuers to engage in reckless lending – and virtually every credit card loan is a “liar loan” with no income verification.
Banks have compounded this problem by shifting much of the loan risk to investors through securitization. When card issuers securitize credit card debt, they transform the credit card debt into a pool of assets used to pay off bonds. If the pool turns out not to be large enough, the bond investors take the loss. But if there’s a surplus, it goes to the card issuer.
While card issuers sell off most of the default risk, they keep any upside that comes from inflating their fees and rates. This is a heads I win, tails you lose situation and leads the banks to increase fees and interest rates on securitized debt. If the higher fees and rates cause more defaults, it is investors who bear the loss. If the higher fees result in more income, however, it is the card issuer, not the investors, who benefit.
In order to ensnare consumers in these fees, the card companies employ an ingenious system of billing tricks and traps. The hallmark of credit card pricing is obfuscation through disclosure. Card issuers have created enormously complex pricing structures, with multiple interest rates and fees. On top of this Byzantine structure, issuers then layer a filigree of abusive and deceptive billing practices, buried in reams of fine print.
Making the total cost of using a card utterly inscrutable allows issuers to play a game of three-card monte. Card issuers distract consumers from the total price of credit cards by emphasizing teaser interest rates and rewards programs. Meanwhile, issuers raise the back-end fees that consumers inevitably underestimate. Since the 1990s, overlimit fees have gone up over 115% and late fees over 160%. The rise of these fees has a 99% correlation with the growth of securitization. Because credit card pricing is opaque, the market cannot function efficiently, and consumers inevitably misuse credit cards to their detriment.
The tricks and traps in the fine print alone cost consumers over $12 billion last year, and this is only a fraction of the pain inflicted by the one-two punch of interchange fees and abusive interest rates
Most consumers spend responsibly and live within their means, but the banks have devised a system to encourage reckless overspending – and enrich themselves in the process. But it turns out the maze of tricks and traps even fooled the banks. As delinquencies rise, they are looking for a handout. Whether or not they get it, we need to learn something from this crisis and fix the credit card business model or we’ll all be in line for some special lumps of coal in a Christmas future.
ADAM J. LEVITIN teaches bankruptcy and commercial law at Georgetown Law
Visa and MasterCard’s merchant interchange fees are more than a $60 billion annual hidden tax on Americans. Since early 2005, WayTooHigh.com has been chronicling the news and providing commentaries on this unfair fee. The thousands of member banks used to own all of Visa and MasterCard – which are trade associations that operate the vast electronic paymentnetwork. They still own about 50% after their IPOs. Will they use these added billions to cash out and run from Visa and MasterCard? Or, as the banks continue their downward spiral, watch as they use their cash cow interchange fee revenue stream as the next finger to stop the cascade of record losses. Interchange fees will be the next tool to grab our attention.
The credit card interchange fee is the biggest credit card fee you’ve never heard of. Nearly $2 of every $100 American consumers spend using credit cards go directly to the credit card industry through the interchange fee.
In 2007 alone, America consumers paid over $42 billion in credit card interchange fees. Even consumers who don’t use plastic pay more through higher prices.
And the credit card interchange fee is set in secret – consumers don’t know they’re paying it through higher retail prices. Interchange fees have risen a staggering 133% since 2001.
A rare bi-partisan consensus has emerged: HR 5546/S 3086, The Credit Card Fair Fee Act which stops the price-fixing by the credit card industry and uses a transparent market-based process.
Nov. 29 (Bloomberg) — The subprime mortgage crisis is giving department and convenience stores and gas stations a new argument in asking Congress for power to negotiate the fees banks charge them to process credit-card transactions.
Retailers such as Target Corp. say banks make so much money from the fees that they give credit cards to people who can’t pay their debts, just as they provided mortgages to homeowners who can’t afford them.
“It’s another version of subprime lending,” said Mallory Duncan, chairman of the Merchants Payment Coalition representing trade groups for 2.7 million gas stations, drug stores, supermarkets and other retailers. “The system should be fixed before we are in a position of having to bail out more banks.”
Duncan, a registered lobbyist, is senior vice president and general counsel of the National Retail Federation, whose board members include Delray Beach, Florida-based Office Depot Inc., Cincinnati-based Macy’s Inc., and Plano, Texas-based J.C. Penney Co.
The merchants want an antitrust exemption so they can band together to negotiate with banks over the so-called interchange fee, usually between 1 and 2 percent of the purchase price, that a retailer’s bank pays the cardholder’s bank each time a customer swipes a credit card. The retailer’s bank then collects the fee from the merchant. Consumers don’t see the charge, which merchants say is built into their prices.
‘Significant Issue’
“This is a significant issue for us, and a very high cost for us,” said Eric Hausman, a spokesman for Minneapolis-based Target, the second-largest U.S. discount retailer. “We do expect the next Congress” to look into the issue, he said.
Retailers say the fees should be part of the discussion when Congress returns in January and looks at overhauling bank rules. So far, the merchants have pushed their proposal without success. The House Judiciary Committee approved it in July, though it hasn’t reached the full House or Senate.
Banking groups and the credit-card companies say the interchange fees ensure that retailers get paid even if cardholders default. If the fees were onerous, merchants wouldn’t be so eager to take credit cards, they say.
“You have a choice of whether or not you want to accept plastic,” said Jason Kratovil, vice president for congressional affairs for the Independent Community Bankers of America, the Washington-based trade group for smaller banks. “If the pros outweigh the cons, you do it. It makes a real pithy sound bite to make it that these big banks are out there to gouge consumers.”
Representatives at Bentonville, Arkansas-based Wal-Mart Stores Inc. and Kohl’s Corp. in Menomonee Falls, Wisconsin, had no immediate comment. Spokesmen for Macy’s, J.C. Penney’s, Office Depot, Hoffman Estates, and Framingham-Massachusetts-based TJX Cos. didn’t return phone calls yesterday.
Credit-Card Issuers
Among the largest credit-card issuers is New York-based Citigroup Inc., which this week received a U.S. government rescue package, including $20 million in cash. Two more credit-card issuers, Bank of America Corp., based in Charlotte, North Carolina, and New York-based JPMorgan Chase & Co., were among nine financial institutions receiving $125 billion from the Treasury in October.
“I am connecting the dots with the credit-card industry and the mortgage industry,” said Lyle Beckwith, a senior vice president with the Alexandria, Virginia-based National Association of Convenience Stores.
The banks say credit-card fees cover operating costs, protect banks against default and fraud, and allow them to offer cards with no annual fees and rewards. The charges vary from bank to bank and depend in part on whether the card includes cash rewards or other benefits.
Without the ability to recoup costs, smaller banks wouldn’t be able to issue cards and compete with the larger institutions, said Paul Weston, president of TCM Bank NA in Tampa, Florida.
Fewer Accounts
“You’d see a reduction in the number of accounts,” Weston said. “You’d dial back the features on the account. Some banks would reintroduce fees.”
Financial institutions and their trade associations formed the Electronic Payments Coalition to oppose the legislation, arguing that merchants are simply trying to reduce costs.
“Like any business, they want to find ways to lower their cost of doing business,” said Trish Wexler, a spokeswoman for the coalition, whose members include New York-based American Express Co., Citigroup and San Francisco-based Visa Inc. “We believe that going to Congress and asking for consumers and for the financial institutions to pay is the wrong way.”
Beckwith, whose organization’s members include Dallas-based 7-Eleven Inc. and San Ramon, California-based Chevron Corp., said banks got away from the business model of determining how much a house was worth and how much a homeowner could afford.
“The credit-card business is run by the same banks the exact same way,” Beckwith said. “They’re not in the business of making loans based on the ability to repay, they’re sending out cards based on a business model of making money off the interchange fee.”
Cash or credit? For more Americans, who have already maxed out their credit cards or are just trying to manage their spending better in the tough economy, the answer is increasingly the old-fashioned one.
Retailers like Wal-Mart Stores Inc., Target Corp. and J.C. Penney Co. are noticing a marked shift away from credit cards in favor of cash and debit cards. A big factor is less credit available as major card issuers cut spending limits and raise fees even for customers who pay their bills on time.
The shift ends Americans’ long love affair with credit cards and is one of the changes in consumer behavior that has emerged since the financial meltdown that could depress consumer spending this holiday season and affect shoppers’ habits long afterward.
Federal regulators were considering a new rescue for Citigroup on Sunday, a step that could mark a third leg of the government’s broader efforts to bolster the nation’s financial industry, according to people briefed on the plan.
Under the proposal, the government would shoulder losses at Citigroup if those losses exceeded certain levels, according to these people, who spoke on the condition that they not be identified because the plan was still under discussion.
“Citigroup Inc. is nearing agreement with U.S. government officials to create a structure that would house some of the financial giant’s risky assets, according to people familiar with the situation.” (source: WSJ)
Commentary: Wouldn’t it be nice if all businesses could restructure their bad assets to create a phony holding company to pretty up their books? Will the government also be acquiring the bank’s legal liabilities, including the multi billion dollar merchant interchange antitrust class-action for which Citigroup is a named defendant? As a part owner, will the U.S. demand that Citigroup’s ownership in Visa and MasterCard be used to leverage away the unfair credit card interchange fees?
Just read this article. Part of the agreement with Visa and MasterCard is that merchants and those processing electronic card payments do not charge an added surcharge or “convienence fee,” which seems to be occuring in this situation for paying propertry tax bills with credit cards.
Visa Inc. and MasterCard Inc., the world’s largest credit card companies, said U.S. antitrust enforcers are investigating their policies that bar merchants from charging extra to customers who pay with cards.
The companies disclosed in separate filings this month with the SEC that the Justice Department has demanded information on the merchandising rules. American Express Co. also disclosed that it received a similar demand.
The credit-card company could be hit with downgrades after offering a very cautious outlook
For a while there, it looked like Visa Inc. was relatively well-protected from the financial crisis. Since the company doesn’t actually supply credit to cardholders, it seemed as though Visa would continue to benefit as consumers increasingly favor plastic over cash for transactions. Today, some of these high hopes have been dashed by cautious comments from the credit-card concern.
In its 10-K filing, Visa warned that it could incur significant severance charges in fiscal 2009, as it “continues to evaluate alternatives for achieving synergies in the global organization.” Among the many risks to its bottom line are: penalties related to litigation settlements; costly new compliance burdens due to increasing global regulatory focus; intense competitive pressure on customer pricing; consolidation in the banking industry; negative trends in consumer spending and cross-border travel; and adverse currency fluctuations.
Speaking of litigation settlements, word also hit the Street today that Visa received its fourth civil investigative demand from the Department of Justice regarding potential antitrust violations. In its regulatory filing, Visa said it is cooperating with the DoJ in connection with its request for information.
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