June 1, 2009
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News: Hidden Retail Fees
Most consumers don't realize that every time they use their credit card, the merchant pays the card company a fee called an interchange fee. These fees vary depending on the type of card. Many of the premium rewards credit cards have a higher fee which has outraged merchants. Merchants are not willing to absorb all the cost and therefore pass them on to the consumer by raising prices. The fees which are charged by both Visa and MasterCard cost retailers nearly $48 billion a year. These fees have become the subject of a six month study by the Comptroller General of the United States. The study will be conducted under the authority of the new Credit Card Act of 2009 that was recently signed into law by President Obama. Lawmakers included the provision to determine how the fees were actually allocated. The new law orders the Comptroller to investigate the following:
• The extent to which interchange fees are required to be disclosed to consumers and merchants, and how such fees are overseen by the Federal banking agencies or other regulators.
• The ways in which the interchange system affects the ability of merchants of varying size to negotiate pricing with card associations and banks.
• The costs and factors incorporated into interchange fees, such as advertising, bonus miles, and rewards, how such costs and factors vary among cards.
• The consequences of the undisclosed nature of interchange fees on merchants and consumers with regard to prices charged for goods and services.Retailers have been lobbying for the right to advertise discounts to consumers if they use an alternative method of payment rather than the premium credit cards or other cards that have higher interchange fees. They would also like to have the ability to negotiate their interchange fee deals. Additionally, merchants want consumers to know how much their credit card transactions are costing them in interchange fees.
A detailed summary of the report is due to be presented to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives within 180 days from the signing of the bill. Regardless of what the report has to say it is sure to stir up a heated debate between credit card companies and retailers.