Posted on 04/02/2007 8:22:49 AM PDT by outfield
Merchants say higher fees are forcing them to hike prices. Congress may take up the issue. WASHINGTON — Credit card companies have always taken their cut when a customer uses plastic, part of the cost of doing business electronically. But a surge in the fees has sparked an intense dispute, with small merchants complaining that the higher charges are forcing them to raise prices and, in some cases, threatening to drive them out of business. With the two sides at loggerheads, Congress is preparing to step in on behalf of merchants and consumers.
(Excerpt) Read more at latimes.com ...
Typical bankers guerrilla tactics! He who has the gold makes the rules.
"This has been an interesting issue that has been building over the last year or so. "
You don't notice this at "big box" stores. Shopping on the internet, the credit card is just about essential.
But, try going to a small independent merchant. Offer cash and see what it does to the price! It's a beautiful thing for those of us who can manage our money.
It was a long time ago, but I actually made merchant fee rates for BankAmericard and so have seen what goes into them. Mostly, the fees are just enough to cover costs. If they are climbing I'd attribute the rise to an attempt to get even on consumer default losses rather than an attempt to gain profit. This line remains the biggest loser in Bank lending so far as I know and is mostly an excuse for people to run up debts they then walk away from.
Add to this political hypocrisy and you have the witches' brew I expect to boil over in the next few weeks. Think I'll pay off my cards and get on out of this altogether, now that the congress has decided to weigh in. Leave it to liberal politicos to destroy a marginal market (to save it, don't you know).
Well, duh. That's what happens when you mail out preapproved credit card forms to every man, woman, child, household pet, and dead voter in sight.
Umm, yep, that would be part of it. So far, my pets haven't been canvassed but then we just started getting them their shots. Only a matter of time, I'm figuring.
Don't you just love faux populism?
Good idea. And it will make line at the counter shorter :)
It talked about what the current fee is: Most come as a flat fee of 10 to 25 cents per transaction, plus a percentage of the sale, about 2% on average.but it gives no indication on what portion of that doubling is from an increased rate and what is from increased use of credit cards. If people spend twice as much on their cards, I would expect that the fees imposed by credit card companies would double.It said that credit card companies' profits from interchange fees rose 33% from 1990 to 2004, (which didn't keep up with the 47% inflation rate during those same years)
and that the total amount of the fees have doubled since 2001,
Along with slightly increasing fee rates, they have raised the number of high-fee cards in circulation and heightened incentives for cardholders to pay for purchases by credit card rather than cash or check.
Ah, so the fees have been slightly increased (still no quantitative details). And part of that is for incentives for cardholders to use credit cards. If Congress pokes around too much, expect the rebate cards many people (including me) love to disappear and for interest free grace periods to go the way of the dodo bird.
It costs money to process credit cards. It also costs money to handle checks (do you think those check guarantee services work for free?). It even costs money to handle cash because of pay to employees to count it, mistakes in handing out change, "employee loss", robbery losses, and lost interest because of needing a larger amount of cash on hand for a cash business.
Every article I have read on the subject states otherwise and as this Congressional Quarterly article (March 19th edition, not available online) notes, only 13% of the fee goes to cover the cost of transaction processing.
The fee seems to be growing exponentially so maybe when you were making the fees, they only covered the cost and a little profit, but that isn't the case today.
Also it seems the rise in the fees, even as technology and volume of purchases would seem to result in lower fees, is due to the funding of rewards cards and as steve-b said, marketing.
Sure, I have noticed that big boxes like Costco and Sam's avoid accepting Visa for this reason and why Wal-Mart is now trying to get into the banking business. Visa's market share allows them to bully the mom and pop places but the big boxes obviously have a little more leverage.
Until I started really digging I wasn't aware, for example, that store owners aren't allowed to offer cash discounts or require minimum amounts to use plastic. The merchant agreements they sign with Visa. MasterCard, etc. prohibit that. As the LA Times article said until the threat of Congressional action last year, the credit card companies wouldn't even disclose their fee structure.
To give you an idea, I was in that division in 1981. That's 'a long time ago' in many senses, not merely the length of liberal memory-banks. So, that things might actually be awry is totally possible. It's just that I don't trust the current congress to intervene in a market. If they do, then I want to be in a safe position. In the current case, the safe position is 'out'.
I totally understand and am also always reluctant to see Congressional intervention into the market. However, in this case the mere threat of action and public awareness may lead to at least full disclosure from the credit card companies so that we (the consumers) know how much interchange is costing us and that the merchants can understand how the fees are set and when the rates are raised.
While I'm not a merchant, if their agreements are anything like the average consumer credit card agreement then I can strongly sympathize.
Honored more in the breach than in practice, especially with small retailers, where everything is negotiable.
Why did God make Goyim? Someone has to pay retail. (No, I'm not.)
Yes, Sears has a fixed priced, Main Street Appliance does not.
regards - red
What kind of stuff do you sell?
Again, from memory the agreements are even more difficult to understand, the assumption being the merchants' lawyers will be reading and able to parse things out. The deals always did get better with increasing transaction size and volume, with size of average transactions reducing the price faster than volume.
Thing is, there is actually more security if the merchant uses the swipe than a check because the site then checks with the actual mainframe balances eliminating kiting and vastly reducing overcharge, at least for electronic entries.
You'd think this would have a reverse effect on prices, yes?
Will you take two kegs instead of a cask?
Glad to hear you are able to do without the credit card companies and avoid this issue altogether. From the few merchants I have talked to and my observations, it would seem to be a severe disadvantage to not accept any credit cards in general, but obviously there are exceptions.
Of course, interchange fees are collected on debit cards as well, but I'm guessing you don't accept them either.
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