Reprinted from The Orange County Register “Gas Pains” blog, July 2, 2008 [posted by John Gittelsohn].
It’s hard to argue that soaring crude oil costs are driving up the price of a gallon of gas.
But Mitch Goldstone, an Irvine businessman, says credit card companies are making visits to the pump even more painful — adding 8 to 10 pennies to the price of each gallon of gas.
“A bunch of people are angry at gas prices, but consumers don’t know that credit card fees exist,” Goldstone said.
Goldstone plans what he calls “The Great American Protest Against MasterCard and Visa Fees on Gasoline.” He expects to be joined by hundreds of demonstrators, including some gas station owners at the protest Thursday at 7:30 a.m. at the Chevron gas station at the corner of Jamboree Road and Barranca Parkway in Irvine.
Visa Inc. announced June 26 that it was taking steps to address these types of complaints by capping debit card transactions at the pump at 95 cents per purchase — effective July 18. The San Francisco-based company also said it will reduce the fees it charges fuel stations for transactions on its credit cards, called the “interchange rate.”
“Even though Visa’s interchange rates on fuel transactions are already among the lowest in our system, the run-up in fuel prices to today’s unprecedented levels requires an exceptional response,” said Bill Sheedy, global head of corporate strategy and business development for Visa Inc.
In response to questions from the Register on Wednesday, Visa asserted that it was not ultimately responsible for the cost of its services impacting prices at the pump:
“It’s important to note that retailers, such as gas stations, pay what is called a Merchant Discount, which is their cost of accepting card payments from their customers. They pay this amount to their own financial institution, known as a merchant bank or merchant acquirer. Large oil companies often negotiate their merchant discount rate with their financial institution directly and then impose those rates on their franchised stations. In many cases, rates given to stations are marked up by the oil companies. These rates are never set by Visa.”
It’s no secret that some of the cheapest gas in California is sold by ARCO. One reason: ARCO stations do not accept credit cards — and they often charge customers an extra fee for using a debit card to fill up.What’s less well know is how much credit card companies charge to retailers — not just gas station owners, but any company that uses a credit card for a transaction
“Now, a lot more people are being forced to use credit cards because they don’t carry $100 in cash to fill up,” he said.
Essentially, Goldstone says there’s a compound interest problem here.
Credit card companies make retailers pay an interchange fee each time a customer buys something with their card. The fee is based on the size of the purchase. So as a gallon of gasoline soared an average $1.50 — almost 50 percent — in the past 12 months, the credit card companies have increased their fee collections almost 50 percent, without lifting a finger.
In fact, Goldstone argues, credit card companies are doing less work for each transaction, because the technology has improved so much.
“It used to be that we’d make carbon copies of receipts and mail them to Florida,” he said.
Here’s what Visa said in its June 26 announcement:
As an example, under the new rates, if a motorist uses a Visa Signature credit card to fill a 15-gallon tank at $4 a gallon – or $60 total – the acquiring institution generally would pay $0.94 in interchange fees, a savings of 14 percent over current rates. Using a debit card, that same transaction could be cleared within hours, quickly removing the $60 hold that is often placed on a consumer’s funds for one or two days in the current system. For higher transaction amounts, these interchange adjustments have an even greater impact. For a $120 consumer transaction, the level of interchange for the same Visa Signature transaction would be $1.63, for a 43 percent savings. With the cap on Visa Check Card interchange, an acquirer would see a reduction of 59 percent on fuel transactions.
Goldstone, owner of an Irvine photo shop [30 Minute Photos Etc. and ScanMyPhotos.com], is lead plaintiff in a class action lawsuit filed by thousands of merchants alleging that Visa, MasterCard, several banks and credit card companies are violating anti-trust laws. The plaintiffs’ attorney, Craig Wildfang of Minneapolis, said the soonest the case could come to trial is late 2009.
To see a copy of the complaint, filed in U.S. District Court in New York, CLICK HERE.
To see more about how Visa Inc. is offering to help gas consumers, CLICK HERE.