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Note: Check in with me tomorrow when the actual hearing takes place. If I can I will provide updates in a subsequent diary.

The credit card associations and the banks that support them have gotten away for too long without answering serious questions about their practices, and at long last, tomorrow there will be a hearing on Capitol Hill to consider the Credit Card Fair Fee Act - HR 5546. It hasn’t had the same press as the Credit Card Bill of Rights but it is no less important, and I say that not just because I work with the merchant group that has done tons of work over the last couple years to bring the issue to this point.

One co-sponsor of the bill who speaking up on the issue is Vermont's Peter Welch, one of the best progressives we have in the House. Comments from Welch and more details via the Rutland Herald below:

With every swipe of the card, retail businesses in Vermont and the rest of the nation pay companies like VISA or MasterCard a transaction fee. Those fees, industry analysts say, can add as much as 2 percent to the costs of goods and services in the state.

"Credit cards are very tough on our small businesses," Rep. Peter Welch said at a news conference Monday. "Any charges our small business owners have, they have to pass on to customers. And one of their biggest costs is credit card fees."

Welch said credit card companies — namely VISA and MasterCard, which control 85 percent of the market — operate behind a veil of secrecy allowing them to raise fees at will and without explanation. The Democrat Congressman said he'll introduce a bill later this week that would impose new disclosure rules aimed at bringing transparency to the industry. The legislation also would direct the Federal Trade Commission to open an investigation into possible collusion by credit card companies.

"It's a near monopoly they have," Welch said of VISA and MasterCard. "And, as is often the case with monopoly power, it's abused."

He's dead on about the situation, although if I had to differ at all, I might say the "near" is questionable. What's most sinister about the interchange fee (that's the merchant fee in question) is that it's not immediately obvious that it's of concern to average consumers. But one of the areas where it certainly starts pinching everyone's wallet is at the gas pump these days, and

Peter Annis owns the Black River Quick Stop in Springfield, a gas station and convenience store on River Street. On Monday, in the parking lot of Kurrle's Fuels, a gas station in Montpelier, Annis said he's paying more than $800 a week in credit card fees.

"It's exorbitant," Annis said. "And it continues to grow and grow and grow as more people use credit cards."

Annis said credit card fees at the gasoline pump have erased his profit margins. He sold about 4,000 gallons of gasoline last week. At a profit of five cents per gallon, Annis said, he should have made about $211. But credit card fees charged to him on those gas transactions totaled more than $258.

"That's a net loss of $47 for pumping gas all day long," Annis said. "Sooner or later, this has to stop."

Will it stop? That may come down to the Credit Card Fair Fee Act. I'll have more to say about it tomorrow, and if I can find a way to live-blog it or otherwise generate updates about what's being said, I definitely will do so.

Originally posted to Interrobanger on Wed May 14, 2008 at 01:35 PM PDT.

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Have you heard about the interchange fee controversy before?

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| 63 votes | Vote | Results

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Comment Preferences

  •  Tips welcome (29+ / 0-)

    And if you are interested enough in the subject that you're likely to check in tomorrow, please let me know.

    je suis marxiste, tendence groucho

    by Interrobanger on Wed May 14, 2008 at 01:36:45 PM PDT

  •  People Just Don't Realize This Happens (5+ / 0-)
    Recommended by:
    lcrp, PsychoSavannah, kurt, JG in MD, satyr9us

    everytime you pull out your credit card to pay for something you cost the business money. Just a percentage point here or there, but a percentage point none the less.

    Let us not forget New Orleans. Visit Project Katrina.

    by webranding on Wed May 14, 2008 at 01:43:39 PM PDT

  •  Why doesn't the gas station owner... (0+ / 0-)

    ...or any other business owner for that matter just stop accepting credit cards? No one's forcing them to.

    •  When Was The Last Time You Paid Cash? (5+ / 0-)

      for something. I do all the time, but I am rare. My local 7/11 like store did stop taking them and it wasn't a pretty sight. I mean who the heck puts a donut and cup of coffee on a credit card? Well a lot of folks do.

      Let us not forget New Orleans. Visit Project Katrina.

      by webranding on Wed May 14, 2008 at 01:48:14 PM PDT

      [ Parent ]

      •  One analogy for why this doesn't work (9+ / 0-)

        is that Ma Bell never forced you to get a telephone, but everyone had to get one whether they wanted it or not. Most merchants these days would probably like to ditch cards if they could, specifically because of these fees. But because Visa and MasterCard have been so aggressive about putting them into consumers' pockets, it can be very risky to get rid of them.

        Put simply, the credit card associations have market power over merchants. What's more, Visa and MasterCard won't even negotiate. The Credit Card Fair Fee Act would just require that they sit down at the table and negotiate. It doesn't force an outcome -- it just makes a better one possible.

        je suis marxiste, tendence groucho

        by Interrobanger on Wed May 14, 2008 at 01:51:46 PM PDT

        [ Parent ]

    •  People are living on their Credit Cards. (5+ / 0-)

      I've started telling my clients that they have to go to the bank next door and get a cash advance, because it's often cheaper.  I had a transaction the other day that was $295 -- the credit card fee was $90.  It's insane.

      "Win some, Lose some . . . and then there's that little known 3rd category." Al Gore, January 9th, 2007.

      by Jbearlaw on Wed May 14, 2008 at 01:51:33 PM PDT

      [ Parent ]

    •  They will lose almost all of their (6+ / 0-)

      customers.  When the banks charge a fee ($3.00 in some places!) to get cash from an ATM machine, when the bank has hours of Mon - Fri 8 a.m. to 5 p.m. and when people have direct deposit, it's just not worth it to try to get cash.  

      Add that to the higher probability of theft if a large amount of cash is kept on the premises, and the owners are in a tough spot.

      •  Hmm. (2+ / 0-)
        Recommended by:
        PsychoSavannah, 1864 House

        Based on how you describe it, it sounds like the credit card companies are providing a service and charging a fee for it.

        Whether CC fees are too high or not I can't really say. I don't even know what "too high" means. Fundamentally, however, a lot of this just sounds like business owners bitching about something that isn't even out of their control.

        •  The level of the fee has nothing to do with (7+ / 0-)

          the service. All the merchants working on this issue are asking for is the fee to be cost-based. Because merchants see no actual benefit from the fee.

          In fact, the rewards programs paid for by that fee end up driving consumers to cards which have... higher interchange fees. Very clever on behalf of the credit card associations. Too clever, really.

          As I've explained in other comments in this thread, the merchants can't even get the banks/CC associations to sit down at the table and talk about it. That's what the bill is all about.

          je suis marxiste, tendence groucho

          by Interrobanger on Wed May 14, 2008 at 02:15:33 PM PDT

          [ Parent ]

          •  yes, there are benefits to merchants (3+ / 0-)

            The big one is guaranteed funds. Then no bounced checks. Fewer cash handling fees when making deposits at a bank. More purchases. Higher dollar amount purchases.

             

            They always say time changes things, but you actually have to change them yourself. - Andy Warhol

            by 1864 House on Wed May 14, 2008 at 02:37:54 PM PDT

            [ Parent ]

          •  Reward Programs (1+ / 0-)
            Recommended by:
            PsychoSavannah

            Are the biggest culprit in the fees.

            Who do you think is paying for your cash back or free airline tickets? The merchants you buy things from and the card issuer.

            They always say time changes things, but you actually have to change them yourself. - Andy Warhol

            by 1864 House on Wed May 14, 2008 at 02:39:17 PM PDT

            [ Parent ]

          •  It sounds like you're being intentionally naive. (0+ / 0-)

            As far as this discussion goes, the primary benefit merchants get is the ability to accept credit cards as a means of payment, thereby encouraging customers. (For the sake of argument, I'm ignoring all the benefits that potentially come with not dealing with large amounts of cash.)

            As far as the bill itself goes, that makes sense. However, your diaries always read like some sob story of the poor, helpless merchant being ripped off by the big mean credit card company and, quite frankly, I'm going to call bullshit.

            As far as I can tell, the market is working and I see no evidence to the contrary. Merchants make a choice to accept credit cards, and pay the associated fees, because it's more profitable to do so than to do otherwise. That, fundamentally, is the entirely of the economics of the situation bundled into a sentence. Sure, merchants would prefer different; that doesn't necessarily mean it has to be different, though.

            •  Or maybe you're just being intentionally contrary (2+ / 0-)
              Recommended by:
              lemming22, followyourbliss

              And in the past you've always responded that "just because the merchants don't like it doesn't mean it should change" and that's not a refutation.

              Don't worry, I can handle you calling bullshit if that's how you really feel. But the fact remains that the situation with interchange fees has been becoming a bigger and bigger issue each year. Australia did away with the fees entirely and the European Commission is looking into it as well. Other countries can deal with it, so why can't we?

              The big issue here really is whether Visa and MC are behaving anti-competitively. That has been the judgment of other countries, but as long as they are so secretive, it's hard to know for sure. If you don't like the pressure being put on them, that's fine, but I'll keep arguing for more transparency.

              je suis marxiste, tendence groucho

              by Interrobanger on Wed May 14, 2008 at 02:53:07 PM PDT

              [ Parent ]

        •  But credit card fees (3+ / 0-)

          aren't charged to the cardholder, they are charged to the vendors, and usually passed on to the customer whether they pay with cards, checks or cash.

          And if you are a business who ships products through the mail, you have to take credit cards.  Anyone who is foolish enough to send product out the door without payment first isn't going to be in business very long.

          "The meek shall inherit nothing" - F. Zappa

          by cometman on Wed May 14, 2008 at 02:16:50 PM PDT

          [ Parent ]

      •  Yes, exactly (3+ / 0-)

        It's very easy to say "just don't use the cards" but it is MUCH harder to actually do it. If the market was working, this would be true. But if this was the case then we wouldn't be talking about. The problem is that the market is not working.

        je suis marxiste, tendence groucho

        by Interrobanger on Wed May 14, 2008 at 02:13:04 PM PDT

        [ Parent ]

    •  It's not just credit. It's on your debit cards (5+ / 0-)

      too.  Sometimes called interchange or sometimes called merchant fees, every transaction carries this charge.  Wal-Mart brought a class action against Visa and MasterCard a few years back for inordinate debit card charges and Visa and MasterCard settled the case to make it go away.  These charges mostly pass through from the merchants to the banks who issued the card, until recently the real owners of Visa and MasterCard.  It looks and probably is collusion because the same banks were members of both associations.  Ugly, ugly, ugly.  Good luck with your case!!

      Impeachment! Indictment! Incarceration!

      by followyourbliss on Wed May 14, 2008 at 01:55:30 PM PDT

      [ Parent ]

    •  They don't call it "the cost of doing business" (3+ / 0-)
      Recommended by:
      exNYinTX, dennisl, BlueMississippi

      for nothing. Did you see the Sopranos episode in which Artie Bucco lost his certification to accept credit cards? He knew it would reduce his business by half-- customers are accustomed to using cards as cash, particularly with larger purchases.

      The problem is that the fee to businesses per transaction rises over time, even as the real cost of the digital information transfer grows ever smaller like the size of a microchip. Customers then use cards as cash for ever-smaller purchases, until eventually the vendor's average cost per transaction exceeds the average sale-- the vendor makes a negative profit.

      If a vendor attempts to set a purchase minimum for credit card sales to maintain the balance, the Interchange Overloards give them the Artie Bucco treatment.

      Here's the thing: businesses actually are stopping to accept credit cards. They know they'll lose business, but it's less of a loss to lose business than it is to pay for a service that eats your profits.

      As businesses say no to credit cards, customers wake up to the reality of an aggressive duopoly running roughshod over America's economy. And then we have this discussion.

      I had a splitting headache, from which the world was made. --Kerouac

      by satyr9us on Wed May 14, 2008 at 02:37:38 PM PDT

      [ Parent ]

  •  Another way of descibing these fees (8+ / 0-)

    is calling them a 'corporate tax'.

    Credit card companies are in the business of lending money.  Their income is in the form of interest on the debt owed.  They make quite a bit of money this way, there is no reason they should be tacking on fees in addition.

    Here's a durty little secret the credit card companies have:  they also profit off of transactions they know to be fraudulent.  A few years ago the company I worked for billed a customer about $10,000 on an AMEX card.  Only $9,700 of that amount hit our bank account because of the fees involved.  Then AMEX called to let us know that the card we billed was stolen and refunded the money to the customer(by taking the money back from our bank account).  But they didn't just take $9,700 from our company's bank account, they took back the whole $10,000, netting them $300 at our expense on a transaction they new to be fraudulent.

    I don't know how many fraudulent credit crd transactions get made every year, but the credit card companies must make millions of dollars on those alone.  If I were a lawyer, I might think this was ripe for a class action lawsuit.

    "The meek shall inherit nothing" - F. Zappa

    by cometman on Wed May 14, 2008 at 01:50:24 PM PDT

    •  We had our debit/credit card number (6+ / 0-)

      stolen a couple of years ago.  It was used in Istanbul, Turkey to the tune of $1,100.  We got our money refunded and a new account opened, but we had a good idea about who stole the number and the bank didn't want to hear what we had to say.  It was like they didn't want to investigate the fraud.....

      •  No they don't. (2+ / 0-)
        Recommended by:
        PsychoSavannah, satyr9us

        They protect themselves, the vendors in the middle get the shaft, and the criminals usually get away with it.

        In one of my discussions with the AMEX company, I was told that they based some of their decisions about fraudulent charges on the shipping address.  If the shipping address was different than the billing address of the customer, and a customer complained that the charge was fraudulent, they would refund the customer's money.

        I then asked them if i got an AMEX card and did all my Xmas shopping online, had the presents sent directly to my friends' and family's homes, and then called AMEX and claimed the card was stolen and none of the charges were really mine, would I get my Xmas shopping done for free?  Their customer rep said she wasn't at liberty to answer that question.  I told her 'I think you just did.'

        "The meek shall inherit nothing" - F. Zappa

        by cometman on Wed May 14, 2008 at 02:09:45 PM PDT

        [ Parent ]

      •  The real reason (2+ / 0-)
        Recommended by:
        PsychoSavannah, lemming22

        is that it is impossible to prosecute something from the US that happens in Istanbul. It's a waste of time and energy. Most credit card fraud overseas goes unpunished because of this.

        They always say time changes things, but you actually have to change them yourself. - Andy Warhol

        by 1864 House on Wed May 14, 2008 at 02:42:13 PM PDT

        [ Parent ]

  •  Progressive Congress, here's an opportunity (4+ / 0-)
    Recommended by:
    PsychoSavannah, kurt, JG in MD, satyr9us

    This is one of those policy issues where Dems really have a chance to pass meaningful legislation and get stuff done.  

  •  No Fees on Debit Cards, Right? (3+ / 0-)
    Recommended by:
    PsychoSavannah, webranding, marykk

    There's a VISA logo, but if I say "debit" there shouldn't be a fee.

    The card can go through as either one. Is it important for people to say "debit" and not "credit" when the clerk asks them how to process the card?

    •  That Is My Next Question ..... n/t (2+ / 0-)
      Recommended by:
      PsychoSavannah, JG in MD

      Let us not forget New Orleans. Visit Project Katrina.

      by webranding on Wed May 14, 2008 at 01:53:50 PM PDT

      [ Parent ]

      •  A good question, and yes (6+ / 0-)

        There are still processing fees, but if you say debit and enter your pin, those fees are much more cost-based. If you say credit and sign, that's going to hit the merchant with a higher fee, the one that Visa/MC use to pay reward cards and not coincidentally, is a major profit engine for them.

        je suis marxiste, tendence groucho

        by Interrobanger on Wed May 14, 2008 at 01:56:45 PM PDT

        [ Parent ]

        •  That's debatable. Depends on the merchant or. (1+ / 0-)
          Recommended by:
          kurt

          type of merchant.  Debit and credit Visa/MasterCard interchange prices have been converging.  

          Impeachment! Indictment! Incarceration!

          by followyourbliss on Wed May 14, 2008 at 01:59:39 PM PDT

          [ Parent ]

        •  Interesting To Say The Least (1+ / 0-)
          Recommended by:
          cometman

          I am 38. A creature of technology. One place where I don't use technology is related to how I pay for things. I have this strange thing called a bank. I go to it and they give me money. I pay people with this "thing" called money and they give me products or services. I also have this new invention called a check.

          Let us not forget New Orleans. Visit Project Katrina.

          by webranding on Wed May 14, 2008 at 01:59:43 PM PDT

          [ Parent ]

          •  I'm with you. (2+ / 0-)
            Recommended by:
            webranding, chigh

            I always carry cash for several different reasons.  Chief among them is I don't need people knowing exactly where I spend my money.

            As a former bank teller, I could see everything a customer spent money on if they used their debit card.  Next time you go to the bank and the teller lights up with a big smile, it may not be just because they're glad to see you...;)

            "The meek shall inherit nothing" - F. Zappa

            by cometman on Wed May 14, 2008 at 02:03:01 PM PDT

            [ Parent ]

    •  Sorry, not true. There is ALWAYS a charge to the (2+ / 0-)
      Recommended by:
      PsychoSavannah, kurt

      merchant everytime you use your debit or charge card regardless of how you use it.

      Impeachment! Indictment! Incarceration!

      by followyourbliss on Wed May 14, 2008 at 01:57:42 PM PDT

      [ Parent ]

      •  But the fee is bigger if it's credit (0+ / 0-)

        So it makes sense to use the debit option. It's a small gesture, but over time if enough people do it, I imagine prices would not rise as quickly

        •  And, the interesting thing is (0+ / 0-)

          if you can use to choose your card as a debit with a PIN number, it is a safer transaction than if you sign a piece of paper.  The teller or clerk or whoever can never see your PIN, but if you sign for a transaction, they have your original signature right there in their hands.

          Impeachment! Indictment! Incarceration!

          by followyourbliss on Wed May 14, 2008 at 03:21:24 PM PDT

          [ Parent ]

          •  Unfortunately (0+ / 0-)

            this has proven to be wrong. There was a huge case last year where TJX corp (TJ Maxx, Marshalls)stored all data on card mag strips and captured the PIN and stored it all in a huge database. There was a data breach and "white cards" were created to drain funds from accounts.

            Consumers who are hit by PIN fraud (from shoulder surfing, writing down their PINs, etc) have a much harder time recovering funds.

            Choosing CREDIT for your debit purchases actually gives you more consumer protection.

            They always say time changes things, but you actually have to change them yourself. - Andy Warhol

            by 1864 House on Wed May 14, 2008 at 07:37:11 PM PDT

            [ Parent ]

    •  My company accepts (3+ / 0-)
      Recommended by:
      PsychoSavannah, kurt, Acadian

      anything with a VISA/MC on it.  There are always fees, no matter if it is a credit or debit card.  There are several different criteria which affect the fee structure, but on our monthly bill fees are always between 2 and 2.8% no matter what.

      "The meek shall inherit nothing" - F. Zappa

      by cometman on Wed May 14, 2008 at 01:59:54 PM PDT

      [ Parent ]

  •  Thanks for the post! (3+ / 0-)

    Such a pervasive, significant part of our lives and our economy, and so few are aware of it. You done good.

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