WASHINGTON,
DC – U.S. Representative Jan Schakowsky, ranking member on the Subcommittee on
Commerce, Trade, and Consumer Protection, today raised concerns about the
effects that interchange fees charged by credit card companies have on consumers
and small businesses at a hearing before the Subcommittee.
Representative Schakowsky’s opening statement is below:
We are entering into a “cashless” society. The year 2003 marked the first time
ever that businesses and consumers made more payments electronically than by
check. Today, for every one payment in cash, there are two made with bank
cards. For merchants, banks, and consumers, a swipe of the card is the way to
go.
What most consumers don’t realize is that each time a card is swiped, an
interchange fee is charged to the retailer. The interchange fee, a percentage
of the total purchase, varies on whether a debit or credit card is used, the
type of business at which the purchase is made, whether the business is big or
small, and whether the card offers bonus programs – like frequent flier miles.
Although the varying fee is meant to mitigate the risk to the banks, it is not
linked to the cost for Visa or MasterCard – or the issuing banks – for
processing transactions.
I’m concerned that merchants offset the interchange fees they are charged by the
credit card companies by raising the prices consumers have to pay for the goods
on the shelves. The credit card industry also benefits from those higher prices
because transaction fees are a percentage of product prices. So, the more a
product costs, the more money the banks make through the fees. And, the
transaction fee is based on the product price– after tax. So, in effect,
consumers are charged a Credit Card tax because their costs come on top of their
true product cost and sales taxes. Consumers who spend and contribute to the
economy should not be punished with higher fees. Americans are already
struggling to contend with out-of-control energy and prescription drug prices.
They should not have to empty their bank accounts just to fill their shopping
carts. We should be looking for ways to help working families get relief rather
than enabling an industry that reaps billions in profits every year.
Considering that the retailers are also responsible for paying interchange fees
on the local, state, and federal taxes of every card transaction – on top of the
purchase price, I think we are also seeing a Credit Card Tax on retailers.
Furthermore, most merchants, with the exeception of a few big box stores like
Wal-Mart, cannot simply negotiate interchange fees. There is nothing to stop
the banks from setting whatever rate they choose. If stores want to accept
debit and credit cards, they have to accept the fees the card issuers set. It
is estimated by the National Association of Chain Drug Stores that the
interchange fee is the third largest expense for those stores after rent and
labor. Because we see so many small businesses struggling to get by, we need to
ask tough questions about whether these fees, which are completely unregulated,
are putting an undo burden on the corner store.
The interchange fee is a golden goose for the credit card industry. Fifteen
percent of Visa’s profits come from interchange fees alone. Some make even
more. Banks collected an estimated $30 billion in interchange fees last year –
partially from switching consumers to more expensive cards, like the ones loaded
with perks that also carry more expensive rates for merchants.
Currently, the merchants are fighting back. There are at least 47 lawsuits in
the United States, many of which have been consolidated into one large suit,
concerning interchange fees. The suits charge a number of banks and Visa and
MasterCard with engaging collusive practices and setting the interchange fees at
supra-competitive practices. Whatever the courts decide, I think it is our
Subcommittee’s responsibility to make sure that consumers are not saddled with
higher prices and that the slim profit margins of small businesses are not eaten
up by interchange fees.
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