Fee fight: Credit card transaction fees make foes of retailers and banks

Consumers may not think much about the credit card transaction fees that banks charge retailers. But both groups want you to -- and with a conflict heating up over how much those fees should be, they both want you on their side.

In this war over processing fees, both groups are trying to win consumers over with videos on YouTube, with the retailers using a pirate theme and bankers using a rather dull classroom scenario. Retailers want the right to negotiate those fees. Bankers say merchants already have the right to negotiate, but most choose to go with a default nonnegotiable rate.
How much is a stake? Retailers generally pay between one and two percent of the total sale to the banks that handle their credit or debit card transactions. Banks that handled these transactions collected a total of $48 billion in fees. Retailers want U.S. fees to match more closely the fees that are charged in Europe, Canada, Australia and New Zealand. In fact a study done by the Merchants Payments Coalition found that if American merchants paid the same transaction fees for the use of credit and debit cards as those charged in Australia, the total savings for merchants over the past four years would be $125 billion.

Banks counter that argument by saying that the retailers want them to provide their services for free. These services include guaranteed payment to the merchant, risk management protection and better record-keeping. If the retailers aren't charged, than someone else will have to pay -- and that someone would be the credit card holder, in the form of fees and reduced rewards programs. But I doubt the banks will gain much sympathy for their position, since they are already jacking up fees and interest rates for consumers, as well as cutting back rewards benefits.

Retailers are trying a variety of methods to recruit consumers to their cause. In fact, 7-Eleven even started a petition drive to get consumers involved. The National Association of Convenience Stores told The Washington Post that credit card transaction fees are their number two cost after labor and they're not negotiable.

Merchants have gotten the ear of Congress and three bills are now under consideration. One bill before the House Judiciary Committee would allow merchants to enter into collective bargaining agreements with banks to negotiate fees. A similar bill is being circulated on the Senate side by Sen. Richard Durbin. A third bill by Rep. Peter Welch would make it easier for retailers to steer customers to other payment methods and let them set minimum and maximum amounts for purchases using plastic.

Banks, in response to the retailers arguments, say that if the retailers win, they likely will not lower prices for consumers, and they question whether consumers will benefit in any way from the change. The banks likely are right. If the retailers win, I doubt we'll see lower prices at the retail stores and I'm certain banks will find a way to collect the lost fees from consumers either in new credit or debit card fees or lowered reward benefits.

Consumers have no role in this fight. Don't get caught up in signing petitions for either side. No matter what happens, consumers will likely continue to pay the same -- and possibly even pay more.

Lita Epstein has written more than 25 books, including The Complete Idiot's Guide to Improving Your Credit Score.
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