Credit Card fees cost you $400 a year even if you use cash

credit cardsWhile you may not know it; merchants have to pay a fee to use the credit card machines which typically is 2% of the actual purchase price. To defray this cost of doing business many retailers factor the 2% fee into the shelf price for items which leaves cash-paying customers shelling out the same 2% overhead on their purchases too. During this year your family will spend on average $427 to cover these fees while the credit card companies net a cool $48 million from the interchange fees.

You can't make that kind of money in the U.S. without attracting attention from Congress and lobbying groups especially when your industry is already under fire for high interest rates and complicated anti-consumer fees and fine print. Congress is looking to regulate the interchange fee with the Credit Card Fair Fee Act of 2008. This fee is a cost of doing business; get rid of it and you risk a less reliable system or having the cost will moved to a different area under a new name. Even if the retailers can negotiate a lower fee, how likely is it that they will drop prices to reflect it? Consumers are already adjusted to the current price so the profit will stay with the retailer, not be passed to the consumer.

The article points out that any changes on the credit card end would just be passed on again in the form of higher interest rates. If this is really for the betterment of society as a whole, isn't a 2% transaction fee better than a 2% higher interest rate that compounds itself? Don't think I've forgotten about those individuals who pay off their balance every month; they'll also risk a negative result because the income from the interchange fee is part of what funds the rewards programs they enjoy cashing in on.

This is definitely the wrong area for the government to step in and start dictating fee structure and business practices. If they want to help out consumers they should refocus on the consumer side and continue to work on making billing practices better. Under the new legislation the government would try to create a rate that represents a system in which neither the buyer nor the seller has any power, an unrealistic scenario. If price gouging were going on I'd support the government breaking up the racket but in this case I believe that more government involvement would only add another barrier to entry to any startup that wants to create a better and cheaper system.

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