Limiting credit card fees might not help consumers, GAO says
Retailers have been screaming for years about the high interchange fees they pay to banks for the privilege of accepting Visa and Mastercard, and they tried unsuccessfully to get a fee limit included in this year’s credit-card legislation. Now the Government Accountability Office, Congress’ investigative arm, says it’s impossible to tell whether consumers would benefit from such a limit.
In a study released yesterday, the GAO says retailers would definitely benefit from lower interchange fees. For the consumer, the effects aren’t so clear. For one thing, cutting fee income would cause some issuers to drop out of the credit-card market, reducing competition:
In addition, with less interchange fee income, representatives of smaller issuers such as community banks and credit unions told us that they likely would not offer rewards cards and therefore would be unable to compete with the larger issuers in the market.
It’s hard, too, to tell whether retailers would pass the fee savings on to consumers, or just pad their own profits. And even if consumers pay less at the cash register, they might have to pay more to their credit-card company:
Lowering interchange fee revenues for issuers could prompt issuers to increase cardholder costs or curtail cardholder credit availability. In Australia, issuers reduced rewards and raised annual fees following that country’s interchange fee cap.
Bottom line: This is a turf battle between the retailers and the banks, and the consumer may not win either way.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
The average interchange fee in the U.S. is seven times the interchange fee set by Visa and MasterCard in countries throughout the rest of the world. Using 2008 figures, if the interchange fee charged by credit card issuers was decreased (via comprehensive credit card reform legislation) from the current 2.10% to 0.60%, the result would be an annual savings of approximately $34.3 billion for U.S. merchants and consumers.
http://www.csnews.com/csnews/images/pdf/creditcardreform.pdf
In related news….the AMA announced that eating less might not help you lose weight.
It’s nice to know that the GAO is now an official shill of the banksters.
What a sad sad joke.
Brian Donovan,
Are you seriously offering “csnews” (Convenience Store News) as a non-biased bit of reportage? All that savings would be passed on to consumers, would it?
“It’s hard, too, to tell whether retailers would pass the fee savings on to consumers, or just pad their own profits.”
Hard to tell? Really? Here’s a little experiment you can try to see how “hard” it is to tell - ask the next ten people you come in contact with if they think that retailers would pass along a cost reduction or keep it for themselves.
The clue phone is ringing, and some people need to answer it… providing a delivery channel IS NOT FREE. Absorbing the vast majority of the risks inherent in a payment delivery system IS NOT FREE. Is it really all that surprising that the merchant - one of the participants that benefits the most from the existence of the payment delivery channel, yet who participates nearly risk free - is expected to incur a (relatively small) portion of the cost for the privilege?
PS: FYI, for the most part the driving forces behind this absurd attempted money-grab are the big national convenience store chains… especially the really big one everyone can name that is owned by a Japanese conglomerate.
Well said, Jeff.
Merchants have been responsible for MAJOR data breaches with no consequences. It costs issuers millions of dollars to reissue compromised cards when a merchant is careless with their customer information. Case in point–TJX. Financial institutions had to sue them to recoup the cost associated with TJX’s negligence. But as of yet, Congress has failed to make merchants accountable for protecting sensitive consumer data.
Not every card issuer can bring litigation, especially smaller financial institutions. How are they supposed to issue cards if they can’t bear the cost of protecting consumers when the merchants won’t? Less issuers means less competition in pricing–consumer loses, right? That’s why Americans hate monopoly industries, we appreciate free market competition.
Interchange income is the cost of doing business, and part of that is working to protect consumers. The merchants obviously take no responsibility for that. Perhaps card issuers would relax on interchange if the merchants were required to comply with data security laws, meaning bear the cost of re-issuing compromised cards when they leave consumer data carelessly unguarded.
One thing that would help people with credit cards, allow the tax deduction for interest on their payments again. Money back, money spent.