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The secrecy of swiping

May 18, 2009 - Jim Anderson
Here’s something you won’t find in your credit card agreement — even in the fine, fine print.

Each time you make a purchase in a store or restaurant using a credit card, the issuer collects a swipe fee. On average, more than two dollars out of every $100 we spend goes to the credit card firms.

Swipe fees, of course, add up. They totaled about $48 billion last year, according to the Merchants Payments Coalition, a business group seeking reform. (The coalition’s membership includes more than 2 million retailers, supermarkets, drug stores, convenience stores, fuel stations and on-line merchants, among others.)

There’s more. Swipe fees are rising, even though the cost of processing credit cards has dropped. Set in secret and hidden from cardholders, swipe fees have tripled since 2001, the coalition says. And that drives up the price of everything we buy.

Of course, no one’s forcing us to use credit cards.

But merchants complain they’re restricted from offering discounts based on the method of payment. Customer discounts for using cash, checks and debit cards have been thwarted by threats from the big banks of fines and citations.

“The credit card companies want the ability to police how we display our prices to stop us from offering discounts,” coalition members said in a recent letter to members of the U.S. Senate. “They are not doing this to protect consumers nor are they a credible consumer protection regulator. They are doing this to keep their fees hidden.”

The Merchants Payment Coalition supports the Durbin-Bond Amendment to the Credit Cardholders’ Bill of Rights Act. This Senate amendment would allow retailers to give their customers discounts for paying with cash and debit cards.

The banks are fighting back, saying that savings from reform of the swipe fee system won’t be passed on to consumers.

The coalition says that’s an odd claim, since the Durbin-Bond Amendment is meant to allow merchants to offer discounts — unfettered of intimidation from the banks.

Meanwhile, in the U.S. House of Representatives, the Welch-Shuster Credit Card Interchange Fees Act of 2009 (HR 2382) has been introduced by Rep. Peter Welch (D-Vt.) and Rep Bill Shuster (R-Pa.). This bill would require credit card companies to disclose their swipe fee rates, terms, and conditions. In addition, it would empower the Federal Trade Commission to prohibit any practices that are found to be anticompetitive or unfair or deceptive to consumers.

This legislation also has the support of the Merchants Payments Coalition.

“Credit card swipe fees are one of the largest expenses small businesses face and these huge, hidden fees hurt small businesses and consumers at the very time we’re relying on them to rebuild our economy,” said Lyle Beckwith, senior vice president of the National Association of Convenience Stores.

Banking groups and the credit-card companies point out that the interchange fees allow them to offer cards with rewards and no annual fees.

5-22 addendum: The Durbin-Bond Amendment failed.

Lyle Beckwith, Senior Vice President of the National Association of Convenience Stores (NACS), today issued the following statement on the Senate passage of the Credit Cardholders' Bill of Rights Act (H.R. 627):

“We congratulate the Senate on passing landmark legislation to reform the credit card industry. We are disappointed, however, that the abuses that small businesses and their customers face at the hands of the credit card industry remain unaddressed.

“Senators Richard Durbin (D-IL) and Kit Bond (R-MO) proposed a common-sense amendment to the Senate legislation that would have allowed small businesses to give their customers a discount for paying with cash, checks, and debit cards rather than credit cards. It would have been a helpful first step for consumers and merchants alike. It is unfortunate the Senate did not include the Durbin-Bond language in the final bill, but we applaud their efforts."


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