Small Business Advocates Commend California Investigative Hearing on Credit Card Fees (NACS)

January 27, 2010

Hearing provided a critical opportunity to address the impact of hidden swipe fees and review possible solutions.

SACRAMENTO – Monday afternoon, California Assemblyman Pedro Nava, chair of the Assembly Banking and Finance Committee, held an investigative hearing on the impact of hidden credit card swipe fees on California consumers and small businesses. Californians paid nearly $5 billion in swipe fees in 2008.

Small-business owners and advocates know that these hidden fees — which total more than credit card annual fees, cash advance fees, over-the-limit fees, and late fees combined – are crippling Main Street businesses and hurting their customers at a time when they can least afford it.

This hearing provided a critical opportunity to address the impact of hidden swipe fees and review possible solutions. The hearing is particularly notable both because of the size and impact of the California economy in the United States and because Visa’s headquarters are located in the state.

“This hearing is important, because it shows that Assemblyman Nava is listening to his constituents and that he recognizes, at a time when the economy is already so bad, that we can’t afford to let Visa, MasterCard, and the big banks rake in billions of dollars in hidden fees on the backs of small businesses and consumers,” said Mitch Goldstone, president and CEO of, an Irvine, Calif.-based retail and online business that feels the impact of ever-increasing swipe fees every day.

“It’s also important that it’s happening in California. First, because we have such a large economy on our own, and reforms that start here often get picked up across the country. And second, because Visa is headquartered in California, this represents a dramatic signal to them that lawmakers are joining small businesses and our customers in saying ‘enough is enough,’” said Goldstone in a press release.

“Reforms are needed to create a transparent process for businesses to negotiate rates and enhance public awareness of interchange fees, which continue to increase,” testified Liz Garner of the Food Marketing Institute the hearing.

“Card companies and banks collect an interchange fee averaging about 2 percent on every credit and debit card transaction, and can raise the rates at any time by any amount,” she said. “We are working for a more competitive and transparent card system that works better for consumers and merchants alike, and hearings like this one are a critical step in that process.”

Credit card interchange fees squeezed American consumers and businesses to the tune of $48 billion in 2008. These hidden fees are set in secret by the banks and credit card companies and charged to store owners every time they run a customer’s credit card.

Americans pay the highest swipe fee rates in the industrialized world. On average, two dollars of every $100 a consumer spends using a credit card goes directly to the credit card industry. That adds up to $427 a year for every American household. Since 2001, the amount Americans pay in swipe fees has tripled.

source: NACSOnline 


Why the credit card industry does better when their customers are doing worse

January 26, 2010

Since 1990, I have owned and operated a photo imaging business in Irvine called 30 Minute Photos Etc. and now   Times are tough for a lot of retailers just like they are for a lot of our customers.   But it’s not just the economy that make times tough for retailers and our customers.    It’s the credit card industry.  

The credit card business is designed to do better when Americans are doing worse.   Visa, MasterCard and their bank partners are arbitrarily raising interest rates on existing credit and debit card, raising credit card late fees, and even charging interest on credit card debt that is paid on time.  

But what actually cost consumers more is the huge, hidden fees on every credit card transaction known as interchange that is passed through to customers in the form of higher prices.  Two dollars out of every $100 spent in the U.S. in stores and gas stations goes to pay interchange also known as swipe fees whether the customer uses plastic or not.   

But it’s not just credit card hidden fees that are skyrocketing, debit card fees are also rising.  As Andrew Martin wrote in “The Card Game – How Visa, Using Card Fees, Dominates a Market”  in the New York Times on January 5, 2010, Visa pushed signature debit over PIN debit starting in the early 1990s because they could charge 13 times the fee for signature debit than they could for PIN debit – even though PIN debit is the more secure choice for the customer and less prone to ID theft.  


That’s right.   Visa decided to push signature debit even though it compromises cardholder security compared to PIN debit just to make more money for its member banks.  Visa and MasterCard also have rules that prohibit merchants from telling customers that they are paying inflated fees at point of purchase due to swipe fees.   Visa and MasterCard partner banks won’t disclose on their customer’s monthly card statements how much these fees cost them either.   And merchants are prohibited from discounting the price for customers who pay by cash, checks, or lower cost debit, such as PIN.    

 It’s outrageous behavior like this by Visa, MasterCard, and their partner banks that led me to become the lead plaintiff in what may be the largest class-action antitrust litigation in U.S. history, one designed to help rein in the credit card industry.

Interchange fees were designed 40 years ago to cover the costs for manual credit card imprinting (remember carbon copy receipts?). Today, technology and other efficiencies have made credit card swipe fees all but unnecessary.  There are no interchange fees when using store gift cards or writing checks – but due to unbridled market power of Visa, MasterCard and their partner banks there are still interchange swipe fees.  

Ten years ago, when my company first started using digital scanning, it cost $5 dollars per photo because the process was so expensive.   Today I charge 5 cents because the process has never been cheaper.  Unlike the credit card industry, I operate in a free market.  Even if I tried to charge $5 for digital scanning like ten years ago no one would pay it – they just go down the street to the next guy with a digital scanner.  

It has never been cheaper to swipe a credit or debit card.  But unlike the market for digital scanning – or for that matter gas, groceries, and all other retail goods and services — there is no competition down the street to lower the cost of card transactions.   Visa and MasterCard control 80% of the card market and their respectively card networks set the price.  That’s why credit card swipe fees, unlike retail prices, are the same in all fifty states.   No wonder the cost of swipe to consumers has tripled since 2001 to $427 per average household.     

Every other economically advanced country has either reformed interchange or is in the process of doing so.    But largely because of the power of the credit card industry in Congress, Americans pay the highest credit and debit card swipe fees in the world.   We pay four times what Australians pay for the exact same set of credit card goods and services.  So write your congressperson, write your senator, and tell them that you want them to put out the fire that is burning a hole in your pocket.

CNN reports on “swipe fees”; merchant says Washington should stand up to banks

January 26, 2010

CNN national political correspondent Jessica Yellin filed a report on Saturday on Your Bottom Line, hosted by Gerri Willis, examining credit-card interchange fees, “a hidden cost store owners say is crippling business.”

 Estimates show that in 2008 banks collected $38 billion to $46 billion in swipe fees alone, and some in Congress say that’s way too much and a sign that too few banks control the credit-card business, said the report.

Here is a transcript of the report:

Gerri Willis, host of CNN’s Your Bottom Line: While consumers are outraged about sky-high credit-card fees, businesses across the country are feeling the crunch, too. CNN national political correspondent Jessica Yellin joins us now to break down interchange fees.

Yellin: Gerri, I didn’t know these fees existed until I reported this story. Banks make money every time you or I use a credit card. They charge merchants a fee just for accepting the card and, no surprise, businesses pass that cost on to you and me.

According to the National Retail Federation, in 2008 the average household spent $427 on these interchange fees alone. And some in Congress are finding it hard to change that.

Yellin: It’s a hidden cost store owners say is crippling business; it’s called a swipe fee. Each time a customer uses a Visa or MasterCard, business owners like Keith Lipert have to pay a fee and that’s passed on to consumers. [This item costs] $125?

Keith Lipert, Gallery Owner: That’s $125. So the interchange on $125 would be about $2.

Yellin: The fee can be as much as 3% of your purchase, and it adds up. Lipert says swipe fees cost him as much as rent and health care.

Lipert: As a shopkeeper, I’m getting a service or a convenience for the credit-card companies, and that is fair. My objection is that I’m not allowed to negotiate.

Yellin: Credit-card companies say it’s the cost of processing transactions. What are they really getting for that fee? What’s the service that’s being provided?

Trish Wexler, Electronic Payments Coalition: So they’ll get almost instant payment and guaranteed payment for it. Whereas my card issuer, I won’t pay them for another 30 days, so there’s the float on the funds, which is a big component.

Yellin: Estimates show that in 2008 banks collected $38 billion to $46 billion in swipe fees alone. Some in Congress say that’s way too much and a sign that too few banks control the credit-card business.

Rep. Peter Welch (D-Vt.): What we’ve seen, really, is that the financial services industry is starting to make its money not so much by providing reasonable service, but by manipulating price by having a lot of hidden fees, by having a lot of extra transaction costs in running up their profits by doing that in taking advantage of monopoly power.

Yellin: Several bills before Congress would reduce these rates by allowing businesses to negotiate with card companies, but don’t expect those bills to pass any time soon. The industry, which is spending big on lobbyists, insists lowering swipe fees would end up costing consumers in other ways.

Wexler: If interchange rates are forced down below what is sustainable for a card program, then rates are going to have to go up or rewards are going to have to go away. Those are the facts.

Yellin: But Lipert says that Washington should stand up to the banks.

Lipert: We need, as a country, to address this.

Yellin: Now, there’s another reform some in Congress are pushing for now—they want to let retailers charge a lower price if you pay cash. And in a different slightly higher you use your credit card. That way at least only credit-card users are paying these swipe fees, but Gerri, no surprise, so far banks and credit-card companies are fighting that reform, too.

Willis: All right, so obviously we’re seeing yet another fee being passed on to us through retailers. But, what can you do as a consumer?

Yellin: There are two things you can do. If you have to use your credit card, use your debit card, the swipe fee on that is lower than actually using a credit card. And the other is, if you choose a card that doesn’t have as many rewards on it, the swipe fee is lower, the banks are actually charging you for those rewards with that swipe fee.

Willis: All right, and you can always pay cash, there’s always cash. What other reforms might happen?

Yellin: Well, they’re talking about, first of all, disclosing these fees, so that you know what you’re paying. They’re talking about also reducing the cost of…fixing the cost of rewards charges so that you know what you’re paying on rewards cards and they can’t charge you more for that.

But here’s the really important one. There’s a discussion of allowing the Federal Trade Commission to determine if these practices are anti-competitive. That’s because these big banks are getting all together and deciding what the swipe fees should be and some say that’s colluding, that’s monopoly and it should change.

Via CSP Magazine

Businesses seek own credit card reform

January 25, 2010

Mitch Goldstone, CEO of in Irvine, said MasterCard and Visa are “waging economic war” against small businesses and families. “ I’m at the mercy of the credit card companies because of the way my business works,” said Goldstone, who started his company in 1990. “It’s all credit-card driven.”

Read more, click here

O.C. businessman fights fees for Haiti donations (OCR)

January 19, 2010

The following was published in The Orange County Register – see link. Via Jan Norman, small-business columnist

Mitch Goldstone of in Irvine has led a successful effort to stop major credit card companies from charging their regular fees for charitable donations to Haitian relief, reports

Goldstone is on the credit card companies’ radar because he is lead plaintiff in a multi-billion lawsuit over the fees the credit cards and banks charge for every transaction.

“It’s the power of social media and Twitter,” he says. “Immediately after hurricane Katrina, I e-mailed MasterCard and Visa, seeking that they rescind the interchange credit card swipe fees. All I had was my blog ( Today, with Twitter (, it is instant and interactive.”

Credit card companies and banks make about $250 million a year in the fees on charitable donations made by credit card, according to the Huffington Post.

“However these credit cards are only waiving the fees for a little while and only on a handful of charities,”  Goldstone says. “Since most people contribute through their churches, synagogues and through thousands of other organizations, this means that the credit card giants are still profiting. And so many people are texting donations that appear on their phone bill, the card companies are charging fees to the phone companies for those.

Here’s the breakdown of the fee waivers announced by major credit card companies from American Banker:

American Express said it was waiving the processing fees for donations made to any nonprofit organizations listed on the USAID Website in support of Haiti relief – but only between Jan. 12 and the end of February

Visa said it would not apply interchange fees, through the end of February, to donations made to 11 charities contributing to the relief efforts. It will also donate revenues generated by contributions to these charities directly to the American Red Cross.

MasterCard said it would waive interchange fees on Haitian relief donations that are made using U.S. issued MasterCard cards to five charitable organizations.

Discover said it is waiving transaction fees on all credit card donations to the American Red Cross for an unspecified time.

Capital One guarantees that 100% of Haiti relief donations made with its card will go to the charities.

“Most consumers aren’t aware of these transaction fees,” Goldstone says.

Banks suspend interchange fee for Haiti donations

January 18, 2010

A California businessman has led a successful fight to prevent credit card companies from profiting on donations made to Haitian earthquake disaster relief.

Mitch Goldstone, owner of, is among the U.S. business owners who have fought transaction fees collected by credit card companies.

Click here to read more


National Retail Federation and Radio Interview

January 10, 2010

Guests: Mallory Duncan, Senior VP and General Counsel, National Retail Federation and Mitch Goldstone, President and CEO, ScanMyPhoto’

Click here to listen to NPR Mallory Duncan, Mitch Goldstone radio interview.

Few consumers know, or care, what the difference is between signing their name and using their PIN number when they make a purchase using their debit card. Ah, but merchants do. That simple choice you make can add up to hundreds of millions, if not billions, of dollars in annual fees for merchants. If you sign (and 61% of us do), it can cost a merchant twice as much as using a PIN (which is less vulnerable to fraud). Costco won’t allow their customers to sign for transactions because of the higher fee. Visa and MasterCard dominate the market and they set the fees, which banks collect. Those fees (the ones mentioned above and others including something called an “interchange fee”) have some merchants outraged. So outraged that some have banned together to file the largest antitrust class-action lawsuit in US history.