“Rein in the credit card games” (via editorial Detroit Free Press)

repost.

 

BY ADAM J. LEVITIN • November 28, 2008, Detriot Free Press

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

The Next Banking Crisis

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.

Hate your Credit Card Bills? MAXED OUT – NOW ON DVD

UnfairCreditCardFees.com

Fight Unfair Credit Card Fees

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.

New On UnfairCreditCardFees.com

• Australian authorities find interchange fee reforms improve competition and benefit consumers
• Congressman Welch Supports Credit Card Reform; Encourages Congress to Act on Credit Card Interchange Fees that Hurt Both Merchants and Consumers

• Merchants and Consumers Welcome Judiciary Committee Passage of Bipartisan Legislation to Crack Down on the Hidden and Excessive Credit Card Fees
  Credit Card Fair Fee Act Would Mean Free Market Transparency, End Card Price Fixing
• Three in Four Americans Support Credit Card Fair Fee Act
  National Poll Finds Voters Want To Rein In Hidden Credit Card Fees That Inflate Prices; Legislation Would End Credit Card Secret Price Fixing (Poll Results)
• Merchants Say that Visa Fee Cut is Less Than Meets the Eye
  Credit Card Fees on Gasoline Might Actually Be Higher, Not Lower, Under New Visa Program
• Credit Card Fair Fee Act Picks Up Bi-Partisan Support
  Legislation will address credit card industry practices that hurt small business and their customers
• Merchants Welcome Senate Legislation to Fix the Problem of Hidden Credit Card Interchange Fees
  Senator Richard Durbin (D-IL) introduced the “Credit Card Fair Fee Act of 2008,” legislation that addresses the biggest credit card fee of all – the interchange fee, which cost Americans $42 billion last year.

[source: UnfairCreditCardFees.com]

“Credit-Card Fees Targeted by Retailers Who Say Banks Overcharge ” (via Bloomberg)

Reposted – Bloomberg, reporter Jonathan D. Salant

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.”

[source: Bloomberg]

“More customers resume using old-fashioned cash” (via AP)

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.

[Click here to read more. source: AP]

 

“Plan to Rescue Citigroup Begins to Emerge” (via NY Times)

Excerpt:

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.

Click here to read more, source: NY Times]

“Citigroup, U.S. in Talks to Create ‘Bad Bank'” (via WSJ)

“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?

Are Municipalities Violating Visa and MasterCard Rules?

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.

“Online payments may be made with Visa, MasterCard or Discover cards. Those who pay by credit card are charged a 2 percent convenience charge by the credit card companies, DeSelms said.”
[source: News9.com]

“VISA AND MASTERCARD: Antitrust regulators take a look” (via STLtoday.com)

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.

[source: STLtoday.com]

 

More on Visa Inc.

Form 10-K for VISA INC.

Visa says might incur “significant” charges in FY09

The Credit Card Fee That Will Fleece You

“Visa Inc. Warns of Multiple Threats to Fiscal 2009 Results” (via Schaeffers Research)

Click here to read more.

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.

[source: Schaeffers Research, Elizabeth Harrow]

“Citi Slides Again as Firm Weighs Options” (via WSJ)

Executives at Citigroup Inc., faced with a plunging stock price, began weighing the possibility of auctioning off pieces of the financial giant or even selling the company outright, according to people familiar with the matter.

Read more.

[source: WSJ]

Economic Crisis has no Pricing Impact on Interchange Fees

Just as the big three U.S. auto manufacturers were blinded on Thursday by cupidity for not flying commercial, or even driving in electric cars to showcase their future car designs and frugality when they met Congress, Visa and MasterCard are also aloof with phantasm.

Reality 

• The Standard & Poor’s 500-stock index is at its lowest point in eleven years, losing more than 50% since its peak.
• Crude oil is down 66% from its peak – a record high last summer of $146 a barrel.
• Even Citigroup (a named defendant in the merchant interchange litigation) is down. Yesterday, its stock fell nearly 30% and is now trading under $4 a share – the high was more than $35 during the past 52-weeks.
• Seemingly, everything is falling, even the staffing count at Citigroup, which is firing nearly 53,000 employees. J.P. Morgan Chase, another named defendant, is cutting nearly 2,000 jobs or 4% of its work force.

According to the WSJ, “[t]he Dow is off 47% from last year’s record, its heaviest decline since the bear market of 1937-1938, when it fell 49%. It is down 43% for the year so far. If it doesn’t improve, that would make this the second-worst yearly pullback since it was launched in 1896. The worst was 1931, when it fell 53%.”

The point is, with clear signs of a global economic depression, how are Visa, MasterCard and its member banks maintaining soaring merchant interchange fees? When the two leading credit card trade associations went public, both warned in SEC filings that they could become insolvent if the interchange litigation was successful. Who would have though that some of its member banks have or are facing this dire reality for a similar reason – executive mismanagement and greed?

As retailers and ecommerce businesses like us at ScanMyPhotos.com prepare for “Black Friday,” “Cyber Monday” and the holiday season, this is the moment when Visa and MasterCard must be held accountable and forced to address the ominous market conditions and explain their collusive pricing schemes – which impacts all merchants and consumers with a record nearly $60 billion annual interchange fee that few understands and is no longer based on cost-based reality.  It is the last holdout.  Today, these fees are no longer cost-based or associated with the cost to transact electronic payments in today’s high-tech and super-efficient technology world.  Interchange fees, in my opinion, are based on pure market power and cartel-like monopoly domination.

Citigroup may auction parts of firm or sell company outright — Wall Street Journal

CITIGROUP Move Below $5 Could Trigger Major Selling…
Shares sink despite Saudi prince’s investment…

Crude prices fall below $50 a barrel for first time since May 2005

With the global economy in a market meltdown, even oil prices have disintegrated.  Seemingly the only price that is staging a fortification are Visa and MasterCard’s merchant interchange fees.  Retailers are experiencing lower sales and facing a bleak holiday season, yet interchange fees – that nearly $60 billion dollar annual hidden tax on Americans – continues with unbridled market power.

CitiGroup Inc. to Fire Upwards of 50,000 Employees

In another sign of the baking industry’s dismal leadership and failed strategies, according to the Wall Street Journal, “Citigroup plans to announce job cuts of up to 50,000 through attrition and layoffs as Chief Executive Vikram Pandit addresses employees in a town hall-style meeting Monday morning. Citigroup’s head count would be cut to 300,000 from about 350,000 at the end of the third quarter.”

 

 

 

Break from Interchange Fees for Message on Human Rights

Click on this YouTube link. It was produced by Ben Mears during the past two days in Los Angeles to personalizing the gay marriage issue.  Ben also works with us at ScanMyPhotos.com.  If you’ve been following the most important civil rights issue in generations, California is at the epicenter of a major battle over the legal contract called “marriage.”  During the past many weeks, I have been lending my support and helping in the statewide protest against the passage of Proposition 8 in California.  My photo in the Orange Country Register was just a part and more is planned with additional protests.  Ben has done an extraordinary job with this video and I am so proud of his leadership on what will become a significant presentation that will be viewed by many.  Congratulations Ben!

On another issue, look for my Op-Ed piece in a national publication this Sunday in support for Governor Schwarzenegger plan to fix the state’s fiscal crisis.

And, the rest of the story:  With the global economic turmoil, I have mixed feeling about the millions in billable hours generated by the massive legal team representing Visa, MasterCard and the major (remaining) banks as they get paid to read my blog.  I wonder how many of their teens are being put through collage?  How many mortgages, vacations and cars are being purchased in exchange from those sending invoices to the banks, Visa, MasterCard and other named defendants for reading this blog about what, in my opinion, are writings about illegal price-fixing actions?  I hope I’m at least paying for some of their children’s weddings! 

Embattled Banks Still Planning Big Bonuses…

(CBS) It’s no secret that investment bankers are well-compensated, mostly through year-end bonuses, especially during bull markets.

But can they still count on those big bonuses this year, in the midst of the financial crisis and market freefall?

Read more

View video

[source: CBS The Early Show]

What Aren’t Visa and MasterCard Merchant Interchange Fees Falling?

Seemingly, everything is tumbling due to the global economic gloom.

The average cost for a gallon of regular gasoline in southern California is about $2.35, more than a $2.00 decline in just five months when it peeked at $4.60.  What’s happening?  The trend is to lower prices, yet another cartel – the banks and Visa and MasterCard are hard pressed to send out a notice that they too are reducing their anti competitive fees.

JPMorgan Chase Completes Ownership Transition of Chase Paymentech

As Chase and First Data Part Ways, Chase Eyes Alternative Payments

(November 3, 2008) Banking giant JPMorgan Chase & Co. and processor First Data Corp. said on Monday they have completed the previously announced split-up of their joint venture called Chase Paymentech Solutions, the world’s largest merchant acquirer. The bank-owned Chase Paymentech will focus on alternative payments and geographic expansion with its 51% share of the former joint venture’s assets, but it’s unclear what First Data will do with its 49% share.

Click here to read more.

[Source: Digital Transactions]

“A Quiet Windfall For U.S. Banks” (via Washington Post)

Excerpt, by Amit R. Paley, Washington Post Staff Writer, Monday, November 10, 2008; A01. Click here to read more

 

The financial world was fixated on Capitol Hill as Congress battled over the Bush administration’s request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.

But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.

Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company’s losses to offset their gains and avoid paying taxes.

Lawmakers decried the tax shelters as a scam and created a formula to strictly limit the use of those purchased losses for tax purposes.

Lawmakers decried the tax shelters as a scam and created a formula to strictly limit the use of those purchased losses for tax purposes

The Treasury notice suddenly made it much more attractive to acquire distressed banks, and Wells Fargo, which had been an earlier suitor for Wachovia, made a new and ultimately successful play to take it over.

The Jones Day law firm said the tax change, which some analysts soon dubbed “the Wells Fargo Ruling,” could be worth about $25 billion for Wells Fargo. Wells Fargo declined to comment for this article.

Sen. Charles E. Grassley (R-Iowa), ranking member on the Finance Committee, was particularly outraged and had his staff push for an explanation from the Bush administration, according to congressional aides.

[source: Washington Post, Nov 10]

American Express to become a bank-holding company

American Express Granted Bank Holding Company Status (source American Express Company press release)

————————–

Commentary

Now, the U.S. Treasury could fund Centurion, Platinum, Gold and Green American Express cardholders’ free trips to Europe and other AmEx Membership Rewards programs.  For just 9.5 million AmEx Membership Reward points you can drive away in a 12-month lease on a new Gallardo from Lamborghini and have the U.S. Government help pay for it!.

I can’t make this headline up.  According to the Wall Street Journal, “The Federal Reserve said Monday it will allow American Express to become a bank-holding company, saying ‘unusual and exigent circumstances affecting financial markets’ justified a fast approval of the company’s application. The surprise move would give American Express access to new low-cost financing from the Federal Reserve.”

Where was the Fed and SEC and other oversight agencies when the credit card companies were linked to the housing crisis?  Millions of “homeowners” used their credit cards and phony equity in their homes as a multi billion dollar ATM machine.  Renters were unable to write off those loans.  Will the government crack down and require people who wrote off expenses other than direct mortgage payments to pay it back?  Many even wrote off their living expenses and received tax benefits.  Now, the Fed is granting Amex permission to low cost loans as it becomes a bank-holding company.  What’s next, will Visa and MasterCard cue up to get billions in government loans?  Where were the regulators when the banks (which owned Visa and MasterCard) germinated billions in unsecured, zero-percent mortgages with no credit requirements? 

Heck, even my company, ScanMyPhotos.com played a parody on this mess with this news release.

If you too can’t believe it, ask AmEx in person, as posted on its corporate BusinessWire release.  Media: Joanna Lambert, 212-640-9668, joanna.g.lambert@aexp.com OR Michael O’Neill, 212-640-5951, mike.o’neill@aexp.com OR Investors/Analysts: Alex Hopwood, 212-640-5495, alex.w.hopwood@aexp.com OR Ron Stovall, 212-640-5574, ronald.stovall@aexp.com

Recent Online Comments

Welcome to WaytooHigh.com – The Credit Card Interchange Report

With more than 1,200 news and commentary posting on what has grown into an all out battle against Visa, MasterCard and its thousands of member banks, today’s New York Times profile creates more opportunity to explain why these merchant interchange fees have become a $62 billion annual hidden tax on Americans.  As a lead plaintiff and class representative in what may be the nation’s largest antitrust class action, this three and a half year journey has received widespread support.  To learn more, I invite you to read the previous postings and regularly check back for more updates and news alerts at WayTooHigh.com.

To find out more about ScanMyPhotos.com and our history of supporting and pioneering important civic and pro consumer grassroots campaigns visit our In the News links.  ScanMyPhotos.com regularly is profiled by the national media, including this recent profile in The New York Times – see link.

$61,560,000,000 Annual Credit Card Fees

According to Jane Birnbaum’s The New York Times (Nov 6) “Small-Business Owners Lobby to Cut Credit Card Fees,” [i]n 2007, merchants paid $61.56 billion in electronic payment fees, up from $48.58 billion in 2005, according to the Nilson Report, a payment systems industry newsletter.”

This annual hidden tax on American consumers has skyrocketed from $25 billion to $50 billion and now is nearly $62 billion in only a few years. This at a time when General Motors’ sales plunged 45%, when families are cutting back on expenses, when the global economy is marred in a deep recession, where stock markets have lost nearly half its value and the market capitalization for many companies have been decimated.  Technological efficiencies should be bringing down the cost to transact electronic payments, yet the Visa and MasterCard payment networks are bringing in record fees for its member banks which own about a 50% interest in both companies.  Visa andMasterCard also profit from a portion of the fee that they get, which is comically called the “discount” fee.  I don’t see any discount here.

“Small-Business Owners Lobby to Cut Credit Card Fees” (via NY Times)

Click here for link to the November 6, 2008 “Small-Business Owners Lobby to Cut Credit Card Fees” New York Times article by JANE BIRNBAUM

Excerpt:

Small business owners are lobbying for new legislation in hopes to cut mandatory fees owed to banks each time a consumer uses a credit or debit card, reports The New York Times.

The legislation would urge banks to negotiate fees with merchants. Some business owners are seeking class-action status for litigation claiming antitrust violations by banks and the MasterCard and Visa card networks, says the article.

 

 

A merchant card payment has two parts: an interchange fee, which includes an average 1.7 percent of the sale price and a flat per-transaction fee, and a separate fee that goes to the merchant’s bank, explains the article. In 2007, merchants paid $61.56 billion in electronic payment fees, up from $48.58 billion in 2005, according to the Nilson Report, a payment systems industry newsletter. The report estimated that lenders took in 82.5 percent of those dollars.

Mitch Goldstone, owner ScanMyPhotos.com,Irvine, Calif., who blogs about interchange fees at www.WayTooHigh.com, decided to challenge the fees in 2005 after learning that fees on reward cards were going up, says the article. Those representing the credit card industry believe merchants ultimately benefit from the fees.

 

 

 

In July, the House Judiciary Committee, with bipartisan support, passed legislation that requires banks and merchants to negotiate interchange fees, says the article. Small banks and credit unions argued that fee reductions would take away needed income.

 

Ronald Mann, a law professor at Columbia University and a credit specialist, said he expected that there would be “a tremendous push in Congress in 2009 to adopt important credit card reforms” because of the increased sensitivity to banks’ lending practices.”

[source: NYTimes, Thursday, Nov 6]

Is President-elect Obama’s Win Visa and MasterCard’s Loss?

American consumers and millions of merchants celebrate President-Elect Obama’s victory, this provides a chance to change the way Visa and MasterCard’s antiquated pricing system operates.

My thought is that the banks’ trade associations, like the American Bankers Association and the heavily funded Washington lobbying groups will attempt to have President Bush and the outgoing House of Representatives consider a last-minute bailout of the credit card companies and its member banks.  Think of the damage that would do? 

If the government pays off consumers credit card debts, what message would that send to others who played wisely? 

If the government spends even more money, giving it to the banks for additional writeoffs, what about the billions they reap from merchant interchange fees and does that mean even more bailouts?

President-Elect Obama could score major points with consumers and businesses by not letting the banks off the hook.  The nearly $50 billion annual hidden tax on Americans is an ideal launching point to address the destructive elements within the banking industry and its two giant credit card associations. 

It is time for change and yes we can demand that Visa and MasterCard’s enormous boondoggle become the center point for the new consumer-friendly administration’s hopeful resolve to respond to the illegal antitrust price fixing charges against Visa and MasterCard.

Click here to learn more about ScanMyPhotos.com

Do Visa and MasterCard Pass Along the Cost of Their Rewards Programs?

While Visa and MasterCard explain that interchange fees keep rising partly due to the affinity card rewards programs that they invent, we found other businesses that have similar sales incentives and perks that are not passed on to consumers. Take Staples and most office supply retailers, or instance. They have rewards programs, but they don’t turn around and charge their customer to participate.  It is an incentive to get people to trust your brand.  Otherwise, those perks would be like giving someone a present and making them pay for it.

Another example is this:  Customers typically earn 2 rewards points per net dollar spent using a Nordstrom credit card or Nordstrom MOD card.  Its Norstrom’s Fashion Rewards (r) program has just been doubled, customers will receive 4 rewards points per net dollar spent using those Nordstrom cards.  Depending on how many points shoppers accrue, benefits include complimentary standard shipping, early access pass to pre-shop the Nordstrom Anniversary Sale and complimentary alterations services.  Unlike Visa and MasterCard, these retailers are not forcing their customers to pay for receiving rewards points.

“Obama Wins 2008 Presidential Election” (via Convenience Store News)

WASHINGTON — In a move that confirmed major polls’ predictions, it was a victory for Sen. Barack Obama in the swing states of Ohio and Florida, and a hard-fought win in Virginia over Sen. John McCain that cinched the 2008 U.S. presidential election, marking the first time an African American has been elected to the post.

While the popular vote between the candidates was close, it was a mide margin in electoral votes that secured Obama’s win.

With four years under an Obama administration, along with a democratic Congress, convenience store retailers can expect several changes in the convenience and petroleum retailing business, according to industry experts who spoke to CSNews Online prior to the election.

On certain issues, Obama and Congressional Democrats may have a more sympathetic ear to the industry, said John Eichberger, vice president, government affairs for NACS: the Association of Convenience and Petroleum Retailing.

The convenience store industry could see relief under an Obama administration when it comes to credit card interchange fees and the passage of the Credit Card Fair Fee Act.

“With Democrats controlling the House and Senate next year, they tend to be more supportive of small business vs. big business,” Dan Gillian, president of the Petroleum Marketers Association of America, told CSNews. “And I honestly think John McCain or Barack Obama will sign [the Fair Fee Act into law]. I will be very disappointed if it doesn’t get done.”

However, on other issues, such as the environment, neither candidate would be beneficial for the petroleum and convenience store industry, according to Eichberger.

“Obama will be more for alternative fuels,” he said. “McCain is not so gung-ho on ethanol.”

David McCorkle, president of the Pennsylvania Food Merchants Association and Pennsylvania Convenience Store Council, held a similar opinion, saying, “Obama’s support for cellulosic ethanol could be good, if a cost effective production method can be developed.”

Another significant issue the convenience store industry may face under the new administration is Food and Drug Administration (FDA) regulation of tobacco products. Though Congressional Democrats put the bill on hold until after the election, due to veto threats by President George W. Bush, president-elect Obama supports the legislation.

A potential federal health insurance program may also come to fruition as part of the Obama administration, according to Eichberger. In addition, president-elect Obama and a democratic congress could institute changes to the federal minimum wage, as well as push for a stronger Federal Family Leave Act, healthcare reform and workforce development, said McCorkle.

[source: Convenience Store News)

“MasterCard reports 3Q loss on settlement charge”

Even in a fiscal crisis, where General Motors reports a nearly 50% decline in sales, MasterCard’s results beat Wall Street estimates.  That’s what happens when MasterCard and Visa control a nearly 80% monopoly and wield unbridled cartel pricing powers.

MasterCard said Monday that it swung to a loss in the third quarter, hurt by a hefty legal charge, but adjusted results beat Wall Street’s expectations as volume and transactions both rose.  MasterCard and Visa make money by processing transactions made on their branded cards issued by member banks such as Bank of America Corp., JP Morgan Chase & Co. and Citigroup Inc.  MasterCard posted a $193.6 million third-quarter loss because of costs to settle an antitrust lawsuit with Discover Financial Services.

Read more from AP.

Oil Price Collapses 32% in October, Interchange Fees Unchanged

There are not may international cartels remaining.  The global economic crisis has even deflated OPEC’s market power, as crude prices plunged by the biggest level since futures trading began in the early 1980s.  However, Visa and MasterCard and its member banks are continuing to maintain their unfair merchant interchange fees even as oil prices plunge in what is expected to be an extended downward trend for more than a year.

New Visa and MasterCard Interchange Rates on Oct 3rd