View source for Facts About Fees

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[[Category:Credit Cards]]
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{{DES | des = "Hidden credit card and debit card swipe fees inflate the cost of nearly everything consumers buy, even when they pay cash. Consumers pay hundreds of dollars every year in hidden fees just for the "right" to swipe their cards. That money -- about $50 billion every year -- goes directly to banks and credit card companies and is more than twice what was paid in credit card late fees and three times ATM fees." | show=}}
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{{List|title=Facts About Fees|links=true}}
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The Facts About Debit Reform
The Facts About Credit Card Swipe Fees
Myths About Swipe Fees
The Facts About The Impact of Debit Reform On Small Banks
Interchange is the biggest credit card fee you have never heard of

Hidden credit card and debit card swipe fees inflate the cost of nearly everything consumers buy, even when they pay cash. Consumers pay hundreds of dollars every year in hidden fees just for the "right" to swipe their cards. That money -- about $50 billion every year -- goes directly to banks and credit card companies and is more than twice what was paid in credit card late fees and three times ATM fees. 

...and most of the fee pays for all that credit card junk mail!

What started in the 1960s as a fee to cover the transaction costs of using plastic is now a cash-cow for the big banks that issue 90% plus of all MasterCard and Visa cards.  According to a consultant for the big banks, only 13% of the credit card interchange fee goes to processing credit card transactions; much of the rest goes to pay for billions of pieces of unsolicited junk mail annually among other dubious credit card marketing activities aimed at students or those with bad credit histories. 

It’s the sub-prime mortgage crisis all over again!

The same reckless, predatory lending practices that led to the sub-prime mortgage meltdown still prevail with credit cards.  Fat swipe fees have created a perverse incentive for the big banks to abandon responsible underwriting practices in favor of a fee-driven business model in which virtually anyone can get a credit card. Inflated fees charged on lending means that banks care more about maximizing fee income than making sure borrowers can afford to repay their loans.  Interchange is one of the root causes of the billions of dollars in toxic credit card debts on the books of the big banks.  And just like the sub-prime mortgage mess, rising credit card default rates start with consumers who never should have been granted credit in the first place.   

You can’t teach an old dog new tricks…

This business model hurts everyone.   Nevertheless, the big banks still push credit cards today the same way they used to push sub-prime mortgages.  And the same big bank lobbyists who defended sub-prime mortgage fees and practices pre-TARP are still defending and promoting the same credit card swipe fees and practices today!

These secret credit card fees hurt consumers and merchants

US swipe fee rates are among the highest worldwide precisely because the fees are set in secret and hidden from view. Raising swipe fees is how Visa and MasterCard encourage banks to issue more credit and debit cards - as long as rising rates are kept top secret, consumers have no way of knowing the extra costs they are paying. Visa, MasterCard, and the big bank credit card issuers win; only merchants and consumers who are kept in the dark.

Visa and MasterCard operate like price-fixing cartels and violate federal antitrust laws. Visa issuers collectively set credit card swipe fees in secret and MasterCard issuers separately do the same. The fees can't be negotiated and are not adequately disclosed to merchants or consumers. That's why unfair credit and debit card swipe fees continue to rise rapidly despite improved processing technology, consistently low interest rates, and rapidly rising card volume.

Fact:  Swipe fee reform means lower prices, especially on gasoline.
 
Swipe fee reform means more freedom and payment choices for consumers, while repealing debit swipe fee reform would mean higher debit and credit card fees. When consumers can buy gasoline at a 5 or 10 cent discount by using cash or debit rather than credit, they save money. If you believe in American capitalism, then you know that lower business costs on Main Street leads to lower prices for consumers. When you provide more freedom and choices in the payment market, especially in the hyper-competitive world of gasoline and groceries, consumers will benefit.   You don’t have to trust merchants; you just have to trust that merchants have no choice but to cut prices when their competitors do.    That’s why consumer groups—not always friendly to business interests—strongly support swipe fee reform: they know it can’t help but lead to lower prices for consumers.
 
Fact:  Credit card industry price fixing that occurs today costs Americans a billion dollars each week.

With swipe fee reform, banks are allowed charge merchants whatever they want as long as they don’t fix prices.   The Federal Reserve told banks that if they fix prices then there have to be limits.   As things stand today, every single bank in the US charges exactly the same debit swipe fee rates.   It’s as if the Coca Cola Company ordered retailers to sell every single Coke product at the same price.    Card swipe fees started in the 1960’s as a legitimate expense when transaction were done by hand and on paper.   But Visa and MasterCard member banks quickly learned that because swipe fees were kept secret from consumers, they could charge ever-rising prices even though the real cost of “swiping” dropped to near zero due to computer and network technologies.  At the same time, the credit card industry effectively prohibited merchants from offering discounts to consumers who used cash, debit, or no-frill cards vs. premium rewards.   That’s why gasoline discounting is less common today than 25 years ago and why Americans pay the highest swipe fees in the world – eight times what Australians pay.    
 
Fact: Visa and MasterCard aren’t as concerned with fraud as they want you to think.
 
Visa and MasterCard encourage customers to use signature debit instead of PIN debit; signature debit transactions are more prone to fraud, but have much higher interchange rates than PIN transactions.  If the big bank credit card industry was worried about the costs of fraud then they would not encourage it with signature debit.   The credit card industry’s first line of defense against fraud isn’t greater security,  but quietly shifting blame—and cost—to the merchant.   Using a procedure known as “chargeback,” the credit card industry exercises its unilateral power to deny right of payment so that the merchant  is on the hook for the cost, and not the big banks that issue 80% of all Visa or MasterCard branded cards.   The Federal Reserve looked at fraud costs and found that 43 percent of reported fraud losses were borne by merchants.    
 
Fact:  Small bankers say that swipe fee reform will be good for business.
 
Even the small bankers say that swipe fee reform is good for them—despite what the media is reporting.  The head of New Jersey’s second largest credit union, Merck Employees Federal, says that the new reforms mean that credit unions have been handed “a tremendous opportunity” to gain new market share.  In fact, small banks will have a competitive advantage, since banks with under $10 billion in assets—over 99 percent of all banks and credit unions in America—are not subject to the swipe fee regulations and will be able to distinguish themselves the big banks such as Bank of America, Citi, Chase JP Morgan, Wells Fargo, and Wachovia.  According to analysts cited by American Banker, reforms “will put community banks and credit unions at an advantage over larger institutions” because they are able to continue and expand customer rewards programs and free checking.  
 
Fact: Merchants appreciate the debit system, but it isn’t as perfect as the banks claim.
 
Unfortunately,  there’s a big gap between credit card industry adverting claims and actual practices, as both consumers and merchants know.  When a merchant accepts a debit card, there is not a guarantee of payment for the purchase. Rather, the credit card companies use a procedure called a “chargeback” that takes away merchants’ guaranteed payment. A chargeback is just as it sounds—when Visa or MasterCard reverses the debit or credit card charge back to the merchant. This means that any time there is a customer dispute, fraud, a processing error, or an authorization issue, the merchant is very likely to be the one on the hook for the cost—and not the  bank or credit card company.   Chargeback happens millions of times daily in the USA; there is no instant guarantee of payment from the credit card industry, and never has been.  In fact,  cash is much better than plastic in terms of instant payment guarantee because counterfeiting is so much less common than chargeback.
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