A Message from our Publisher
Last updated 5/24/2007 at Noon
Every day business owners throughout the country, in addition to providing goods and services, must play the role of the tax collector for government. Businesses collect federal excise taxes, sales taxes and other fees imposed by the government. Each of these taxes and fees are disclosed to the consumer in some manner and the business remits the fees to the appropriate government agency.
Yet there is one fee that businesses are forced to collect everyday and they are not allowed to inform the consumer because the credit card companies specifically prohibit the merchant from disclosing the fee. It is called an “interchange fee” and it is added to every purchase made with a credit card. Every time you use your credit card the merchant is hit with this fee. Typically the fee runs around two percent of the purchase which means that on a $1,000 purchase, the merchant is paying $20 to the credit card company when a customer uses a credit card. Ultimately all consumers whether using a credit card or not, pay the price for these fees. Most merchants simply calculate their average monthly cost for these interchange fees and incorporate the expense in the price of their products.
Why no public disclosure? Don’t blame your local merchant. With an informed consumer base, the credit card companies will stand to lose billions. The credit card companies simply don’t want you to know that they collected over $36 billion in interchange fees last year. Less than $5 billion of these fees actually cover the credit card companies’ costs for the transactions. The rest, over $31 billion, goes toward membership rewards programs, mail solicitations and of course, profit. Yes, those unsolicited credit card applications you receive ad naseum are being paid for by you through these interchange fees.
These fees are set by the credit card companies which in a free market system is only fair, right? Well, Visa and MasterCard control over eighty percent of the credit card market. Not accepting these two cards would put most merchants at a critical disadvantage. So it is a catch twenty-two for the business owner. Pay-up and shut-up or don’t accept credit cards and eliminate your customer base which pays with credit cards.
It is not the role of government to regulate prices unless of course there is a clear advantage and ability to manipulate the entire market. That is why a utility company must seek government approval for rate increases since there is little competition in a given market area. The credit card companies meet in private with their issuing banks to set the fee level and can increase it whenever the want. This is a clear violation of antitrust laws. Imagine if any other industry colluded to fix prices in an effort to maximize profits.
Congress needs to take action and find a solution. Merchants need to be allowed to disclose the fees and should be charged a fair rate for credit card transactions. Consumers deserve to be informed of these fees and need to know that they are not being gouged at the register by their credit card companies. Most of us would be perfectly fine with not getting countless unsolicited credit card applications if it means and end to overstuffed mailboxes.
Surely the credit card companies will put up a fight, but if members of Congress listen to the businesses in their communities, they will make the necessary reforms that protect consumers and businesses while allowing the credit card companies to make a profit.