Master Your Card

Interchange fees. I’ve talked about these before, but not in a post all their own. These little buggers are responsible for every consumer paying an average of over $400 a year in “fees,” whether they use a credit card or not. And, in my opinion, that’s worthy of a rant all on its own.

Hopefully, most of you have heard of interchange fees, but some may not. That’s the thing about these fees - credit card companies don’t want the average consumer to know about them, because then we can complain. It’s in their contracts with merchants not to disclose this fee on the receipts. Basically, a credit card company charges the merchant – usually about 2% of the transaction amount – to process credit card transactions. Every time you swipe your card, the merchant has to pay the credit card company. There are numerous sets of fees they have to pay, but it’s this interchange fee that indirectly affects us consumers the most.

The interchange fee has been a thorn in retailers’ side for years; eating at their profits and making it difficult to make things convenient for customers. And, to help recoup some of the loss, retailers jack up the prices to make up the difference. That means even if you don’t pay with a credit card, you’re still paying the price differential. Unfortunately, there’s no discount for cash like there is with gas stations these days. The economy is tough, and with credit card companies losing revenue and writing of collections left and right, they’re not keen to lose this particular source of income.

Well, naturally consumer advocate groups have been lobbying Congress to do something about these interchange fees that are thinning out our already thin wallets. Thus, the Credit Card Fair Fee Act of 2008 was introduced, and as of last week received enough votes to move forward. Oh goody! Congress is getting involved, so surely we’ll see some improvement with this situation. After all, we need businesses to stay in business if we want our economy to rebound and we need consumers to keep consuming for the same reasons. So, it makes sense to take a step in the direction of protecting these two interests, right?

Here’s Congresses ‘plan’. The act will require lenders to negotiate with merchants and retailers on the terms for the fees paid to process credit card transactions. Their hope is that the flexibility of negotiation will keep the interchange fee down and, by extension, allow merchants to keep their prices down, as well.

Huh??

I mean, I guess it is a step in the right direction, but it was sort of anticlimactic. All of these other specific changes the government has decided to make in the credit industry and this is what we get for something costing us more than $400 a year? Seems to me that the credit card companies could simply rally together and drop their interchange fee to 1.5% and call it negotiated. Maybe there are more specifics to this bill, but it presupposes that the credit card companies will want to outbid one another, and that the flexibility of negotiation is all it will take. I’m not so sure I’m willing to bet that it will be that easy.

Credit card companies are being battered right now, plain and simple. Obviously they’re against this change, stating that the bill “interferes with the smoothly functioning electronic payment system that currently works to the benefit of consumers, businesses, and the broader economy.” They must think us pretty ignorant to believe that load of codswallop. Even still, they’re losing money left and right and this was one of their few stable sources of revenue. Given the broad scope of the bill, I worry that lenders will find ways around it that still cost us money. At the end of the day, I’d rather pay less in fees and if it’s a slow moving process to get credit card companies to come off their high horse, then so be it.

At least it’s progress. But, I find the bill almost laughable because it doesn’t seem likely to provide much relief to retailers or to consumers. Then again, I haven’t read the bill in full yet, so there could be more substantial coverage within. We’ll have to wait and see.

What are your thoughts? First of all, do you think it’s a good idea for the government to get involved again? Secondly, do you think this bill will do any good?