Credit Card Fees on the Rise
Nobody likes it when banks boost credit card fees—not
retailers who must pass rising costs onto their customers, and
not consumers who end up paying more for merchandise whether
they use their credit cards or not.
Now the Federal Reserve Bank of Kansas City is taking a look
at interchanges rates for credit and debit cards, turning
fees into a national economic issue, according to the National
Retail Federation (Washington).
Interchange is a percentage of each transaction—sometimes
accompanied by a flat fee—that banks collect from retailers
every time a credit or debit card is used to pay for a purchase.
Interchange fees add up to billions of dollars each year.
”[The Federal Reserve’s recent credit card conference]
is going to play a major role in making consumers aware of
the ways banks and credit card companies are artificially
driving up the cost of consumer goods in America,” said
Tracy Mullin, president and chief executive officer of the
NRF. “Credit and debit card interchange fees can account
for nearly $2 out of every $100 consumers spend. Card company
rules force retailers to hide these fees in the price of merchandise
and effectively prohibit us from giving a discount for cash
or checks in all but a handful of situations. The result is
that consumers end up paying extra whether they use their
cards or not. That just isn’t fair, so it’s good
to see the Federal Reserve raise this issue to national prominence.”
Mullin contends that higher interchange rates reduce consumers’
spending power. “Consumers are already burdened enough
by gasoline prices and other rising costs. They don’t
need to have more money taken out of their pockets just so
banks can have higher profits,” he said.
According to a recent Morgan Stanley report, the weighted
average for Visa and MasterCard interchange increased from
1.58 percent in 1998 to 1.75 percent in 2004. Interchange
is forecast to grow to 1.86 percent in 2010. With the growing
use of plastic, interchange fees collected grew from $9.4
billion in 1998 to $17.4 billion in 2004. They are projected
to reach $32.4 billion in 2010. Visa and MasterCard together
make up 90 percent of the U.S. credit and debit card business.
The latest rise in interchange rates came April 1, when Visa
and MasterCard imposed a series of significant increases.
Some of the new rates are as high as 2.9 percent, particularly
for new premium cards. [July 2005 PET AGE]
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