NACS Study: US Pays More for Interchange “Swipe” Fees

A new study by the Merchants Payments Coalition finds that Americans pay a much higher percentage for interchange charges than the rest of the industrialized world.

WASHINGTON, DC – A new study by the Merchants Payments Coalition (MPC) found that if U.S. consumers paid the same low credit and debit card swipe fees as consumers in Australia pay, then the net benefit would have totaled $125 billion over the last four years.

Interchange fees, or “swipe fees,” cost Americans an average of $2 on every $100 they spend with credit cards — a higher percentage than anywhere else in the industrialized world. Why? Because other countries and their governments have been able to negotiate with the big banks and credit card companies for fair rates and transparency, the MPC notes. NACS is one of the founding members of the MPC.

But, in the United States merchants and their customers are still forced to pay sky-high interchange fees.

Interchange fees started out in the 1960s as a way for banks to cover the cost of processing credit card transactions. But even as technology has dropped that cost dramatically, the banks and credit card companies have pushed swipe fees higher and higher, turning it into a cash cow. For many businesses, credit card fees are now their single-highest non-labor operating cost.

With almost any other equipment, supplier or service, retailers can comparison-shop, negotiate or otherwise influence its final cost of doing business. Store owners can conserve on energy usage and seek out the most competitive prices for merchandise, just to cite a few examples.

Not so with credit card interchange fees. Visa and MasterCard control more than 80 percent of the marketplace. They set the fees in secret, give businesses no ability to negotiate and virtually insist they be buried in the price of merchandise. Unfortunately, the card companies’ hidden fees get passed on to all consumers in the form of higher prices and lower value for nearly everything they buy.

“It’s bad enough that the credit card companies force these hidden fees on us and our customers when we can least afford it,” noted NACS Vice Chairman of Government Relations Tom Robinson, president of Robinson Oil Corporation. “But when we are paying more than anywhere else in the world, and other countries have taken action to protect their citizens from abuse, it is inconceivable that our government would turn a blind eye to the issue. It is time for Congress to step up and defend the principles of the free-market economy by taking action on (interchange) fees.”

Though Congress and the White House have addressed other credit card reforms, the MPC is arguing that any fix will be incomplete without addressing interchange fees. Consider:

Banks raked in an estimated $48 billion in interchange fees in 2008 – an average of $427 per American household in just one year.

• This $48 billion total is more than triple the amount collected as recently as in 2001.
• Hidden interchange fees cost Americans more than all credit card annual fees, cash advance fees, over-the-limit fees, and late fees combined.
• U.S. interchange fees are the highest in the developed world. The U.S. pays approximately 60 percent of interchange fees globally – about double the U.S. percentage share of global GDP.

Compared to the rest of the world, U.S. interchange fees are more than two times the rates in the U.K. and New Zealand, four times the rates in Australia and more than six times the cross-border rates recently agreed upon by MasterCard and the European Union.

Meanwhile, the payments industry has back with its own “study.”

In a September 17 press release, Visa announced the findings of a new study that shows that “consumers believe retailers benefit far more from accepting credit and debit cards than they pay in costs.

The press release noted that consumers believe merchants see card cost acceptance as a part of doing business, much like paying for utilities such as electricity.

“Retailers and their well-funded trade associations have filed lawsuits and are aggressively lobbying Congress to allow them to shift their business costs to consumers by allowing merchants to charge checkout fees whenever consumers use credit or debit cards. At the same time, national convenience store chains have launched misleading, in-store petition campaigns to cover for their checkout fee efforts, noted Visa’s press release.

“The response is loud and clear: consumers aren’t buying the message convenience store chains and big retailers are selling,” said Bill Sheedy, group president of the Americas for Visa Inc., in the release. “This research demonstrates that consumers are well aware that legislation is a Trojan horse that likely will lead to higher prices for cardholders while retailers pocket the savings.”

“Swipe Fee” Reform – International Lessons (via UnFairCreditCardFees.com)

Click here to read the recent report profiling interchange merchant interchange fees rates.  U.S. credit card interchange fees ~2X rates in UK, New Zealand.  ~4X rates in Australia. ~6X cross border MasterCard rates in the EU

Excerpt:

 

 

 

 

[Source: UnfairCreditCardFees.com, Merchants Payments Coalition]

“Not only do other nations provide lower interchange rates, but we can also learn from other countries’ experiences with interchange reform. Major countries around the world have addressed interchange reform, with some already demonstrating beneficial results for their economies. In particular, lessons learned from experiences in Australia, New Zealand, Canada, and the European Union, provide instructive examples about why interchange reform makes economic sense in the U.S. – especially now.”

 

UnfairCreditCardFees.com Cartoon

Click here, “Interchange Able”

$25 Oil vs. $60 Billion Visa & MasterCard Interchange Fees?

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? 

Something is very broken and wrong.

Tulips, Silver, Housing Market and Oil Speculators Have Nothing on MasterCard and Visa

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]

“Coalition of Retailers Seeks Action” (via El Paso Times)

Article posted from El Paso Times – By Vic Kolenc

Pharmacist Greg Matthews uses a sign to inform customers about payments at Workers Choice Pharmacy.

Greg Matthews tries to discourage customers at his East Side pharmacy from using credit cards to pay for prescriptions because transaction fees on cards cuts into his already slim profit margin.

Private “insurance reimbursements are so bad, then you add the credit card (fee) to it, and they’re is just no profit at all,” said Matthews, owner of Workers Choice Pharmacy at 10501 Gateway West.

A lady the other day paid her $80 co-pay” on a $120 prescription with a credit card. “I was going to make $3.48,” but the credit-card fee took $1.98 so Matthews only made $1.50 on the transaction, he said. The other day a customer was going to pay a $1.05 prescription payment with a credit card, and “I said, ‘Forget it.’ I just gave it to him” because of the credit-card fee, he said.

Robert Barron, co-owner of Barron’s Superette, a small grocery store at 7555 Acapulco on the East Side, has a different view. He said he doesn’t mind paying the fees for credit cards and debit cards because those cost his store less than handling checks.

“It’s better to pay the fees than have to worry about insufficient fund checks, or checks you can never collect on,” Barron said. Barron estimated 90 percent of his customers now pay for their groceries with a debit or credit card, or food-stamp card.

In August, Barron’s paid $1,072 for debit- and credit- card fees, which includes fees by a company which processes the electronic payments for his store, Barron said.

Matthews said he pays an estimated $2,000 to $2,500 a year in credit-card fees for his small business.  Credit-card transaction fees, specifically the interchange fee set by credit- card companies and collected by banks that issue the cards, have become a hot issue with retailers in recent years.

The Merchants Payments Coalition, a national group of retailers, including supermarkets, drug stores, convenience stores and others, has been campaigning to lower the fees. The coalition is pushing for legislation in the U.S. Congress to set up a mechanism to let retailers negotiate card transaction fees with the credit-card companies. Some members of the coalition also are part of pending lawsuits consolidated into one case in a New York federal court alleging price-fixing of fees by MasterCard, Visa and several banks.

“What we want them to do is negotiate with us (merchants) a price fair for their service,” said John Motley, senior vice president for the Food and Marketing Institute in Washington, D.C., a member of the coalition. “The reason the issue is so big for us (grocery stores) is the average profit within the food retailing industry in the U.S. is about 1.2 percent.” The credit-card fees increase product costs to consumers, he said.

“Interchange fees for credit-card transactions average around 2 percent of each transaction dollar amount,” Motley said. Supermarkets were offered a low interchange fee years ago to encourage supermarkets to accept cards, but that “rate is now disappearing” because premium credit cards are becoming more prevalent and have a higher fee, he said. Fees on debit cards used with a PIN number average around one-half percent, which is not as much of a problem, he said.

Gasoline retailers earlier this year began complaining about being hurt by rising credit-card fee costs because customers were charging larger amounts due to rising fuel prices. MasterCard and Visa made adjustments in fee charges for fuel retailers, the companies said in statements issued this year.  Last year, $42 billion in interchange fees were collected, and this year that number is projected to grow to almost $49 billion, Motley said. That is a 16.7-percent increase. Only a small portion of the fees go for transaction costs, he said.

Visa and MasterCard, the nation’s two largest credit-card companies, said the companies each set their own card interchange rates, but they receive no revenue from interchange fees.  The interchange rate is what the merchant’s bank pays to the cardholder’s bank for taking on the risk, said Denise Dunckel, a Washington, D.C.-based spokeswoman for Visa. “Visa makes its money from contracts with banks,” she said.

Sharon Gamsin, a spokeswoman for MasterCard’s headquarters in the New York City areas, told the El Paso Times in May that MasterCard makes its money from fees it charges banks that issue cards.

The interchange fee is part of a merchant discount fee, which is negotiated between the merchant and its bank for credit-card and debit-card transactions, according to information from MasterCard.  The interchange rate is set high enough for banks to have an incentive to issue credit cards and low enough to encourage businesses to accept the cards, the credit-card companies said.

“I think merchants are getting a good value for what they pay for. The alternative (cash or checks) costs more” to handle,” said Linda Echard, president and CEO of ICBA Bancard in Washington, D.C., an Independent Community Bankers of America subsidiary that provides credit-card services to community banks. The interchange and merchant fees are important revenue sources that allow banks to stay in the credit-card business, she said.

In Australia, where the government stepped in and reduced interchange rates, the number of cards being issued has decreased, Echard said. A MasterCard statement said Australian credit- cardholders are now also paying higher interest rates and fees because of the decrease in interchange rates.

For more information: www.unfaircreditcardfees.com; www.electronicpaymentscoalition.org

Credit fee facts
Interchange fees average 2 percent of the dollar amount of each transaction and are paid by a merchant’s bank to the cardholder’s bank to compensate the bank for risks and costs of maintaining credit- card accounts.

Merchants pay for interchange fees and other fees attached to credit- and debit-card transactions through a merchant discount fee. That fee goes to the merchant’s bank.

Visa and MasterCard said they make no revenue directly from interchange fees, but get their money through charges to banks that issue credit cards in their systems.

How to Support The Credit Card Fair Fee Act

Click here and tell your elected representatives to support HR 5546/S 3086, The Credit Card Fair Fee Act.

Merchants and Consumers Welcome Judiciary Committee Passage of Bipartisan Legislation to Crack Down on Hidden and Excessive Credit Card Fees

WASHINGTON, July 17, 2008 /PRNewswire-USNewswire via COMTEX/ — Credit Card Fair Fee Act Would Mean Free Market Transparency, End Card Price Fixing

The retail community welcomed the House Judiciary Committee’s passage of the “Credit Card Fair Fee Act” of 2008 (H.R. 5546) with the support of virtually equal numbers of Republicans and Democrats.

“The days when Visa and MasterCard are able to impose exorbitant fees on consumers are numbered. Now that Congress and the public are learning how credit card fees are driving up the price of gas, food and other necessities, the big credit card companies are in for a very rough ride,” said Richard Oneslager, Chairman, National Association of Convenience Stores (NACS), a member of the Merchants Payments Coalition.

Interchange fees amount to approximately $2 of every $100 spent using credit cards. Credit card interchange fees cost Americans $42 billion last year and inflate the cost of virtually all retail goods, but especially skyrocketing food and gasoline prices. Currently, credit card interchange rates are set in secret, hidden from view, and exclude merchants from the negotiating process.

“From the cost of groceries to the cost of gasoline, working families are feeling the pain in their wallets,” said John Motley, Senior Vice President, Government and Public Affairs, the Food Marketing Institute (FMI), an MPC member. “The abuse of American consumers and businesses by credit card companies and big banks with a hidden fee that drives up the cost of every retail item needs to end.”

The Credit Card Fair Fee Act will allow merchants for the first time to be included in the negotiating process with Visa and MasterCard, separately with their banks, to come up with a voluntary agreement on interchange rates and terms.

“On behalf of our retail members and their customers, NACS applauds Chairman John Conyers and the Republicans and Democrats of the House Judiciary Committee who stood together today to pass H.R. 5546, the Credit Card Fair Fee Act,” said Oneslager. “This strong show of bipartisanship vindicates the efforts of thousands of NACS members that have taken the issue of outrageous credit card fees and practices to Congress. We look forward to similar bi-partisan support by the full House and Senate.”

The Merchants Payments Coalition (MPC), UnfairCreditCardFees.com, is a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees. For further information, please visit www.unfaircreditcardfees.com.

SOURCE Merchants Payments Coalition

“Lenders Labeled New Marketing Villains”(AdAge)

Click here to view the March 10th AdAge article by Matthew Creamer  (Subscription required).

Excerpt:

• “Debt: It’s the new obesity. Just as food companies have gotten spanked for pumping their products full of fat and sugar, companies that spend big to market credit cards and add more flab to the already-chunky financial waistlines of Americans are coming under increasing fire from politicians, consumer advocates and customers feeling burned by their monthly statements.”
• “Just as food companies have gotten spanked for pumping their products full of fat and sugar, companies that spend big to market credit cards and add more flab to the already-chunky financial waistlines of Americans are coming under increasing fire from politicians, consumer advocates and customers feeling burned by their monthly statements.”

Visa and MasterCard’s Price Wars, Don’t Hold Your Breath

When was the last time you read about competition among the two giant credit card networks, which until recently were both co-owned by the same thousands of member banks?  [The banks still control a hefty share in MasterCard and full ownership of Visa, pending its possible IPO later this month].

Study most other industries and you will learn about real competition and aggressive marketing to win owner customers and market share.

JetBlue Airways and Virgin America represent the exact inverse of cartel-like price controls by agreement.  The two airlines are challenging each other in the Los Angeles market with super-low airfares, even those energy costs are at all-time record highs.  This is a study of competition gone right; some airfares to San Francisco and even cross -country to New York are at unheard of fares – $44 each-way from LAX to SFO and just $248 round-trip from LAX to JFK!

There are many choices, a variety of carriers and convenient flights to popular destinations.  Even though the airlines face supra-competitive interchange fees, and most tickets are paid for over the Visa and MasterCard network, where variable interchange fees are required, it is a study in how competition should work. 

Even so, MasterCard today questioned the European Union’s decision to force the credit card cartel to stop undermining real competition and innovations.   [See MasterCard news release].  Instead, they should review the airlines’ ability to fairly compete and remember that the two giant credit card associations own a suffocatingly large 80% payment network market share.   To merchants like us, MasterCard and Visa are anything but hip, as compared to the smart management leadership at Virgin and JetBlue.  

____________________________________________________

Want to know more about lead plaintiff ScanMyPhotos.com?  Click here and read their daily blog: Tales from the World of Photo Scanning

“Are Visa and MasterCard Hurting Capitalism?” (via RedState.com)

Click here to read blog posting from RedState.com

Want to Know More About MasterCard?

From the MasterCard.com website

“How MasterCard Works” – click here 

“Rules for Accepting MasterCard” – click here

“MasterCard Interchange Rates” – click here

  

 Want to know more about lead plaintiff ScanMyPhotos.com?  Click here and read their daily blog: Tales from the World of Photo Scanning

UnfairCreditCardFees.com Advertisements

From the UnfairCreditCardFees.com website.  Click below to view recent advertisements

Americans pay 3 times as much in credit card fees as Europeans

Ever wonder who pays for all that credit card junk mail? You do. It comes from your credit card interchange fees

© 2007–2008 Merchants Payments Coalition

MasterCard’s Public Relations Machine is Priceless in its Message

MasterCard Europe’s public relations spin machine is gearing up to assail its core customer base – merchants.

In our photo imaging business, the last thing we would want to lash out at are picture-takers.  As our industry transitioned from film to digital, we didn’t fight the trend, but adjusted to what is today a nearly 100% Ecommerce and digital imaging retail business.  No more film and interchange fees are just as antiquated too.

From what we are reading, rather than adjusting to the realities of today’s marketplace – where technological efficiencies and in vogue business practices preclude illegal price-fixing – the credit card giants are, instead, sniping at its customers.

Then again, when you study the lack of management at many financial institutions, which are facing billions in antitrust liabilities and billions more in subprime mortgage failures, it is more crystallized than ever that leadership and academic sophistication have taken a back seat to unbridled greed – that’s what happens when you operate an illegal cartel.

According to The FINANCIAL [click here], MasterCard Europe is cautioning consumers that rates won’t drop. RIGHT THEY ARE!, if MasterCard and Visa have anything to do with it.  Just study the results of the earlier litigation. But, from a merchant’s prospective it will because that is how a fair market economy operates when there is competition and no price controls. Unlike with Visa and MasterCard, merchants have competition and must adjust their fees to not a cartel pricing structure, but to the marketplace. Either way, until our antitrust litigation is resolved, Visa and MasterCard will be free to continue their corkscrewing interchange fee scheme which generates $40 billion each year for the banks. Last time there was this type of resolve, Visa and MasterCard simply raised other rates to adjust for their penalties, thus more than paying for their fines.The EU decision is indeed a wondrous holiday gift for all consumers and merchants, but one that will not be fully enjoyed for many months. It is another rejection of the justifications offered by MasterCard and Visa for fixing of interchange fees paid by merchants.   The Australian RBA, the UK OFT, and the earlier EU decision on Visa all have rejected the networks’ excuses. This decision, and the others, will certainly get the attention of U.S. courts, regulators, and Congress. It has piqued interest by U.S. merchants. It is long past time for the networks to reduce or eliminate interchange fees in the U.S. and worldwide rather than face crippling liability in U.S. courts.  There are nearly 100 separate merchant interchange fees in the U.S. and the domestic rates are more than double the interchange fees in many European nations.

The card associations hint they maneuver in a free market, but their multi-million dollar ad campaigns training consumers not to use cash and insist that debit cards be processed at the much higher signature credit card rates are more about market dominance and market power, where prices are illegally fixed by agreement. Of course consumers and retailers will benefit from the removal and decline of a $40 billion annual hidden tax that few understand.When was the last time a $40 billion annual fee did not hurt consumers?

MasterCard is reporting that “interchange fees benefit consumers by fairly sharing the cost of an electronic payment system among the two key beneficiaries of that system – cardholders and merchants.”  This is wrong and we are suing Visa, MasterCard and its leading member banks over these illegal fees which are anticompetitive and we assert is in violation of the law.

Way back when the credit card network functioned with antiquated, analog manual imprinters (and provided mountains of carbon copy receipts which had to be mailed away for processing) the interchange fees were cost based and had some justification.  Today, the electronic network is so efficient and its costs are a fraction (about 13%) of the total fees charged.

Just look at your local Costco and follow the plunge in flat-screen TV prices. If there was a giant monopoly controlling those electronic items, you wouldn’t have seen the prices fall from $15,000 for a plasma TV to just a few hundred dollars today for a much more efficient and superior flat-screen model. This is the business model Visa and MasterCard should be watching.

As a well-known retailer and Ecommerce business owner, 30 Minute Photos Etc. is always eager to take on the credit card cartel and explain the real facts, as we have been doing for several years and with more than 875 previous WayTooHigh.com news and commentary updates. We don’t invest in controlled market studies, but rather interact with real customers and business owners every day.

In this case, MasterCard even has its holidays wrong. From their prospective, it is not Christmas, but April Fools Day which is upon us; they proclaim that “merchants receive enormous benefits.” They should be explaining more about the $40 billion in fees that are attached to this holiday gift.

According to The FINANCIAL, “Merchants say that MasterCard prohibits them from disclosing to customers how much they pay for accepting payment cards. They know this is untrue. Merchants are free to disclose merchant discount fees, interchange fees, or any other costs they incur. But they choose not to disclose these costs to consumers just as they choose not to disclose any other cost of doing business, or how much they “mark up” their merchandise.”

At best, they are playing verbal shell games a la “Visa and MasterCard don’t collect interchange.” True as a factual statement, but inaccurate.  We merchants don’t directly pay Visa and MasterCard the interchange fees, but to a third-party. In or case, it is Chase Paymentech, which is owned by JPMorgan Chase, a named defendant in our merchant interchange litigation and most recently co-owner of both Visa and MasterCard [small word!]. Visa and MasterCard make it impossible for merchants to disclose the exact interchange fees for each transaction. 

1) In their operating rules (not in the merchant rules on the website but the hidden rules) they set certain fields that can be on credit card receipts and they do not allow a field for interchange (or merchant discounts or other costs), so we cannot put it on the receipt and comply with the rules;

2) Given both the complexity of the interchange fee schedules (MasterCard’s is 100 pages) and the lack of comprehensible identifiers on individual cards (either physical or electronic identifiers), merchants do not know how much they will be charged on an individual transaction;  

3) Visa and MasterCard could make it possible for merchants to identify and determine interchange on the front end but they do not.  As a merchant, we can better guess what the winning lottery numbers are than what the exact interchange fee charged per transaction was. There are nearly 100 separate fees and all are bundled into categories on our monthly statement.  Visa and MasterCard have pages and pages of confusing fee schedules on its website, which we challenge any merchant to fully understand, down to the penny;

4) A respectable solution, until our litigation is resolved, is for MasterCard and Visa to post the exact interchange fee charged on every debit and credit card receipt. This is the defination of “transparency.”  MasterCard’s posted Merchant Rules are so weighty, but not fully followed, even by them.  We regularly notice retailers posting minimum purchase requirements, but are unfamiliar whether MasterCard and Visa fully engages each violation. We even pointed out that the American Red Cross had a $5.00 minimum charge on its website. How many restriction signs do you regularly see near the register warning that payment cards are only accepted if above a certain amount? Competition not cartels should control prices, and any smart business will prudently pass on the reduced interchange fee savings to consumers.

[Commentary: WayTooHigh.com]

“EU to MasterCard: Credit Card Interchange Fees Must be Cut” (via MPC news release)

U.S. Groups Opposed to Unfair Credit Card Fees Applaud Ruling, Urge Congressional Action Here

[Merchants Payments Coalition, news release] Washington, D.C. – December 19, 2007 – Today a coalition of U.S. merchants opposed to unfair credit card fees (unfaircreditcardfees.com) welcomed a ruling by the European Union (EU) Competition Commission that MasterCard’s credit card interchange fees for consumers must be cut across the 26 member nations of the European community. 

Calling the MasterCard credit card interchange fee system illegal and an unfair burden on European consumers and merchants, EU Competition Commissioner Neelie Kroes said “Consumers foot the bill, as they risk paying twice for payment cards:  once through annual fees to their banks and a second time through inflated retail prices paid not only by card users but also by customers paying cash.”

“The EU commission report underscores that Visa and MasterCard hit consumers coming and going.  Cutting credit card interchange fees is an important victory for Europeans as well as for anyone traveling there,” said Tim Hammonds, President and CEO of the Food Marketing Institute, a Merchants Payments Coalition (MPC) executive committee member.  “But American consumers and merchants pay more than twice as much as Europeans – two dollars out of every $100 directly to Visa and MasterCard issuers.  These exorbitant hidden fees are out of proportion to the amount that would be paid in a competitive market,” added Hammonds.

The EU competition commission concluded that MasterCard abused its dominant position in the market by setting credit card interchange fee levels too high.  In January, Commissioner Kroes referred to Visa Europe and MasterCard as “an effective duopoly” that make “outrageous profits”, and that consumers are being “ripped off” by card fees. 

“Global recognition that Visa and MasterCard engage in illegal price fixing is a call to action for the Congress in 2008,” said Hammonds, referring to moves by Britain and Australia that have dramatically reduced credit card interchange fees in those countries as well in recent years. Credit card interchange fees paid by U.S. consumers and merchants to Visa, MasterCard and their member banks is expected to total more $40 billion dollars this year.

Credit card interchange fees in the United States, ultimately paid by American consumers, are currently more than twice as much on average as they are in Europe — the same credit card interchange fees just ruled too high by EU Commissioner Kroes.  U.S. interchange fees on average are about 2 percent, while Visa Europe rates, for example, are capped at 0.7 percent.

Raising hidden credit card interchange fees is how Visa and MasterCard encourage banks to issue more credit and debit cards – as long as rising rates are kept secret, consumers have no way of knowing the extra costs they are paying.  “That’s why U.S. interchange rates are among the highest in the developed world,” said Hammonds. 

In fact, Visa and MasterCard still treat American merchants and consumers the same way they used to treat the Europeans.  Here, credit card interchange fees are set in secret and credit card company rules make it practically impossible for merchants to tell customers how much they are really paying. 

Interchange rates in the United States are now approximately two percent; in other words, two dollars out of every $100 spent on credit and debit cards goes to the credit card companies and consumers who pay whether they use plastic, checks, or cash.  In the United States, interchange fees are the biggest credit card fee you have never heard of, dwarfing all the other credit card fees:  late fees, over-the-limit fees, balance transfer fees, annual fees, inactivity fees, penalty interest fees, universal default, and even ATM bank fees.     

The MPC is a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees. For further information, please visit: UnfairCreditCardFees.com

“Merchants Applaud Senate Scrutiny of Credit Card Fees” (MPC)

According to their Dec 4 press release, the Merchants Payments Coalition is encouraged by a congressional hearing calling into question unfair credit card practices.  Today’s hearing, held by the Senate Permanent Subcommittee on Investigations, is among several held this year that are scrutinizing the unfair practices imposed on consumers and merchants by credit card companies.

“This hearing is another example of how serious the issue of credit card abusive practices is for everyone,” said MPC Chairman Mallory Duncan, senior vice president and general counsel at the National Retail Federation. “The credit card industry has profited from outrageous fees, and congressional attention is beginning to shed some light on a broken system.”

One of the most outrageous fees most people have never heard of is the “interchange” fee, a percentage of each transaction that Visa and MasterCard along with their member banks collect from retailers every time a credit or debit card is used to pay for a purchase. The fee varies with type of merchant, transaction and card, but averages close to 2 percent per transaction.

Unlike other credit card fees, credit card companies don’t show interchange on monthly statements while their rules make it virtually impossible to show it on receipts and make cash discounts very difficult to offer. Instead, stores are effectively required to include the fee in the price of merchandise, meaning higher prices for all customers, even those who pay by cash or check. The hidden fee cost consumers and merchants $36 billion last year and is expected to top $40 billion this year.

Earlier this year, the Senate Banking Committee held a hearing on the billing, marketing and disclosure practices of the credit card industry. In addition, Duncan testified on behalf of the MPC during a July hearing on credit card interchange held by the House Judiciary Committee’s Antitrust Task Force.  Duncan argued that Visa and MasterCard practices in setting interchange rates have constituted a violation of federal antitrust laws.  MPC advocates a payment system that is transparent and open to competition.