This column is from the
"Merchants Payments Coalition,"
http://www.surveymonkey.com/s.asp?u=154782614632 |
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| This
page is intended to provide some brief background on the
issue of credit card companies' fees and practices for you
in advance of your response to the four question survey that
follows. |
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| BACKGROUND |
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| Household
debt rose last year to 132% of disposable income. And, for
the first time since the Depression, the personal savings
rate of Americans has dropped below zero.* |
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| Taken
together, these two facts mean Americans, on average, are
spending more than they are earning.* |
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| Moreover,
hourly wages have fallen 2%,** even as gasoline prices have
risen 20% in the last year.*** |
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| Rising
household debt reflects rising credit card debt, which in
turn follows from rising interest rates as well as higher
credit card fees. |
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| The
largest credit card fee is one most consumers have never
heard of. It is called the interchange fee and it is the
largest credit card fee of all. |
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| The
interchange fees paid on VISA and MasterCard transactions
were more than $26 billion in 2004 and more than $30 billion
last year; by comparison credit card late fees were $16
billion. |
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| In
recent years, interchange fees charged to merchants and
ultimately paid by consumers have increased dramatically,
not only because credit card companies have pushed the use
of plastic on small purchases such as at fast food
restaurants, but also because the fees keep going up whether
by rate increases set by VISA and MasterCard or the
marketing tactics they use to incent consumers to use cards
that cost merchants more in fees. |
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| The
credit card interchange fee gets charged to merchants and,
by extension, to consumers every time someone uses a credit
or debit card. The fee varies but it averages close to two
dollars on every hundred dollars of goods and services
purchased as it is reflected in the cost of everything
consumers buy even when they pay by cash, check, or debit. |
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| Visa
and MasterCard set interchange fees in meetings with bankers
not open to either merchants or the general public. |
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| The
Senate Judiciary Committee, chaired by Senator Arlen
Specter, held antitrust hearings on July 19 to begin an
examination of whether Visa and MasterCard have undue market
power and fix prices in the United States in violation of
antitrust laws. |
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| Visa
(and MasterCard) member banks collectively set interchange
fees and also agree to charge the same fees. This collective
price fixing appears to be a classic antitrust violation and
is a major reason why these fees keep increasing. |
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| Another
reason interchange fees may be increasing is that it helps
fund credit card company marketing practices, such as direct
mail solicitations and television commercials. These
solicitations are aimed at virtually all consumers but are
particularly targeting new users such as teenagers and
college students. |
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| Similar
to the way credit card companies treat consumers in terms of
late fees, balance transfer fees, and over-the-limit fees,
merchants are largely kept in the dark about the rules
governing interchange fees, policies and practices. |
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| In
fact, every American merchant, as well as all American
consumers, pay, on average, the highest interchange fees in
the industrialized world, twice what British consumers pay
and three times what Australians pay. |
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| Recently
the European Community issued a report finding credit card
interchange fees as “penalizing to business and consumers
but also damaging Europe’s competitiveness.”**** |
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Footnotes:
*Labor Department economic analysis recently released in
September and as reported in the New York Times on September
3, 2006.
**Labor Department economic analysis as reported in the
Washington Post on September 5, 2006.
***AAA, as reported in the Washington Post on September 5,
2006
****European Commissioner for Competition Policy, Payment
cards competition inquiry – preliminary results,
Introductory remarks at press conference, Neelie Kroes,
Brussels, 12th April 2006. |
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