January 20, 2010
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The Next Stab at Credit Card Companies, Pt.2
The benefits outweigh the costs.In opposition to rising credit card interchange fees, the Merchants' Payments Coalition (MPC) is asking lawmakers to change the terms of the merchants' contracts with the banks and major card networks. Merchants are asking for a louder voice in the negotiation of interchange fees between the banks and credit card networks. Currently, these types of negotiations are conducted in a closed room environment and merchants are not invited. Additionally, merchants say that the current pricing forces them to raise prices whereby cash patrons end up carrying the costs of credit card purchases. Furthermore, some of the higher reward products come with higher transactions fees and law does not allow merchants to offer a discount if the consumer would opt to use a different card.
On the other hand, those in opposition to the MPC say that the average interchange fee is two percent of the credit card purchase; a small fee to pay for a valuable service. The fee relieves merchants from the liability of credit card fraud and the risks and costs of providing their own credit. They also benefit when the consumer doesn't have sufficient cash to pay for their purchase. Opponents also say that merchants are simply trying to escape the responsibilities of conducting everyday business.
If the MPC wins, the credit card industry says lenders will need to look to other areas to generate revenue and reduce expenses. Reducing expenses would most likely begin with a cutting staff, higher interest rates, higher fees, and the return of annual fees. Lenders would also be forced to reduce the number of available cards and reduce customers' credit limits. Reward programs and special offers such as reduced balance transfer offers would also suffer. Innovation and improved fraud protection improvements would be limited as well. Annual fees would stifle free competition and change the consumer mindset of carrying more than one card in their wallets. Consumers would be wise to stay abreast of the situation and contact their representative to voice their opinion.