Are Credit Card Supported Frequent-Flyer Programs Broken? (

May 31, 2006

Millions of retailers pay higher merchant credit card fees when customers specifically charge using their affinity, frequent flyer award cards. This means that card-holding travelers and retailers are equally engaged in a fierce battle again the card issuers.

USA Today (May 31) reported that frequent flyers are turning a “skeptical eye to the skies.” These loyalty programs are an all-around hidden tax that keeps on rising. Now, the airlines, like the credit card companies are facing growing customer unrest. While businesses are forced to pay higher merchant interchange fees for affinity cards, many do not even know they are also being taken on a ride when customers cash in their awards.

While many travelers are satisfied with the frequent-flyer awards, “Rolfe Shellenberger, now a retired corporate travel consultant in Palm Desert, Calif., understands frequent-flier programs from the inside out.” As reported in USA Today, “The former marketing executive who designed the industry’s first frequent-flier program at American Airlines, complains that airline managers now view them as profit centers rather than a means to promote brand loyalty … [and] their purpose now is to generate more revenue.”

Consumers pay twice. Once from the increased hidden tax paid to retailers and then again when they try to redeem the award mileage, as most are unused.

Since April 2005, Visa® and MasterCard® charge merchants a premium when their customers use these loyalty cards. This is just one of the nearly one-hundred separate merchant interchange fees. The value of the affinity accounts are cemented in a growing pool of waste. We read in the USA Today article that, “[t]heir accounts are brimming with 14.2 trillionmileage points, up from 6.6 trillion at the end of 2000, estimates Randy Petersen, publisher of InsideFlyer magazine and Frequent fliers earned 2.7 trillion credits in 2005 alone.”

[source: with reference to USA Today (May 31)]

"MasterCard: Charging Ahead" (Kiplinger)

May 31, 2006

"Gas Customers Rage About Pump Prices" (USA Today)

May 30, 2006

MasterCard IPO Shifts Risk from Banks to Investors (

May 29, 2006

By Martin H. Bosworth – ConsumerAffairs.Com

May 29, 2006 – When the world’s number two credit card issuer debuted on the stock market on May 24, 2006 with an initial public offering (IPO) of $39 a share, and then swelled to $46 a share in second-day trading, analysts hailed MasterCard’s move as the largest IPO of the year, and a sound triumph for one of the world’s best-known brands.

But investors should think carefully before putting too much of their money into shares of MasterCard, as the company’s move is designed primarily to respond to the series of lawsuits launched by merchants over the high “interchange fees” MasterCard and card-issuing banks charge to process plastic transactions.

By the company’s own admission, the principal effects of the IPO will be to “redeem” shares of MasterCard held by the 1,400 member banks that issue its card, reducing their liability in the event that the merchant lawsuits are successful.

MasterCard plans to use $650 million of the funds raised by the IPO to add to its “war chest” in order to defend against the regulatory challenges from the lawsuits.

Investors who buy up shares of MasterCard hoping to turn a quick profit from the company’s massive public profile may be left holding the bag. Analyst Howard Bernstein told Fortune magazine on May 17th that the cost of the merchant lawsuit litigation could exceed $1 billion dollars easily.

Merchants such as 30 Minute Photos [Etc.]’ Mitch Goldstone, a lead plaintiff in the class-action lawsuits, claims that the high processing fees banks charge [some] retailers to process card transactions wipe out almost any profit they can earn when consumers use plastic.

Goldstone noted that credit card companies and issuing banks reaped huge profits from the processing fees charged when drivers bought gas with credit and debit cards during 2005’s holiday traveling seasons, a process expected to repeat itself this year.

“As gas prices double, seemingly, so are credit card merchant interchange fees – and then some,” he said on his blog,

“As it costs upwards of sixty dollars to top off a car’s tank, consumers are more inclined to pay with credit; they often don’t otherwise have enough have cash as they did when it cost twenty or thirty dollars for gas. This means, the banks’ windfall profiteering is accelerated and enhanced at the expense of drivers across the nation,” Goldstone wrote.

The wave of merchant lawsuits isn’t MasterCard’s only worry. Bank of America is considering issuing its own credit card and acquiring or purchasing its own payment processing network, which would significantly cut into MasterCard’s profits.

In February, Discover Financial, issuer of the Discover-branded credit cards, announced it was issuing its own debit card brand in order to further encroach on the turf long held by MasterCard and Visa.

Also, an increasing number of American cardholders are canceling their cards and closing their accounts, forcing MasterCard, Visa, and the banks that issue plastic to aggressively pursue foreign markets. That could make the merchant lawsuits even more devastating if they are victorious.


"Good Morning America Examines Retailer’s Pain at the Pump" (NACS)

May 26, 2006

"Windfall Profits for the Credit Card Companies This Weekend:" (Merchant Payment Coalition)

May 25, 2006

Windfall Profits for the Credit Card Companies This Weekend: Credit Card Companies to Rake in Millions This Weekend at the Pump at the Expense of Holiday Travelers

WASHINGTON, May 25 /PRNewswire/ — The Merchants Payments Coalition (MPC) said today that with more than 31 million Americans driving for the Memorial Day holiday, credit card companies stand to make millions this weekend from credit card fees at the gas pump.

In a recent survey by the Travel Industry Association and AAA, it was estimated that 31.4 million Americans are expected to drive 50 miles or more from their homes this coming weekend. Consumers know they are paying near- record high prices for gasoline from coast to coast, but what they don’t know is that credit card companies are raking in windfall profits as gas prices rise. When they go to the gas pump this weekend, they will be paying credit card companies a massive “hidden” credit card interchange fee that goes up each time the price of gas goes up.

Last year, credit card fees cost the convenience store industry, which sells an estimated three-quarters of all the fuel purchased in the country, a staggering $5.3 billion, making the credit card companies silent profiteers as gas prices escalate.

“We share consumers’ frustrations over high gas prices. When prices rise, credit card companies actually charge retailers more per gallon for selling gas, a cost that affects every American purchasing fuel,” said Hank Armour, president and CEO of the National Association of Convenience Stores (NACS) and a member of the MPC. “In fact, Visa and MasterCard are often making more on each gallon of gas sold than the retailer actually selling the gas. That’s wrong.”

Credit card interchange fees are a percentage of each transaction — sometimes accompanied by a flat fee — that Visa and MasterCard banks collect from retailers every time credit or debit cards are used to pay for a purchase. This fee averages close to 2 percent. Total credit and debit card interchange collected by Visa and MasterCard in 2004 amounted to $26.7 billion, according to the Nilson Report, a business magazine that covers the credit card industry.

“These credit card interchange fees unnecessarily cost American consumers billions of dollars every year, making the credit card companies silent ‘winners’ when gas prices increase,” said Armour. “And the most egregious part about this particular credit card fee is that unlike the endless list of other credit card fees such as late fees, over-the-limit fees, inactivity fees, and balance-transfer fees, most American consumers don’t even know they are paying it.”

“The amount of credit card interchange fees collected has nearly doubled over the past 10 years despite the fact that the technology used to process credit card transactions has become more efficient and less expensive,” Armour said. “Congress and other state and federal regulatory agencies should closely examine all of these credit card fees. Like all consumers, we are fed up with these fees — which help pay for Visa and MasterCard’s endless junk mail and solicitations to target vulnerable teens and seniors with credit card come- ons.”

The Merchants Payments Coalition is a group of 20 trade associations representing retailers, restaurants, supermarkets, drug stores, convenience stores, gas stations, on-line merchants and other businesses that accept debit and credit cards. MPC is fighting for a more competitive and transparent card system. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees.

[Source: Merchants Payments Coalition]

"Class Action Takes Aim At MasterCard IPO" (Competition Law 360)

May 25, 2006

“As MasterCard Inc. debuts on the New York Stock Exchange as a public entity Thursday, the second-largest credit card company is already facing a new challenge over its initial public offering from an ongoing lawsuit.”

[subscription required]