December 8, 2009
As Washington turns its focus to creating jobs and boosting hiring, a group of retailers claims that the fees for processing credit card purchases are so high that they cut into businesses' cash flow and prevent them from investing in new employees.
According to the Merchants Payments Coalition, which has been fighting for regulation of "interchange fees," if average interchange rates were reduced by 1 percent it would allow businesses to hire 1.3 million people. If the rates were equal to those of Australia's, the coalition said, that could free up enough cash to create over 1.9 million jobs.
"Consumers and merchants are paying two dollars in interchange fees for every $100 of merchandise that is paid for with plastic," said Jennifer Hatcher, Group Vice President of Government Relations at the Food Marketing Institute and member of the Merchants Payments Coalition. "You take a year of those two dollar payments, and those are peoples' salaries that are going straight to the credit card companies."
Interchange fees are applied by banks and credit card companies to the cost of every transaction. Though the fees are invisible to the consumer, retailers claim that the ever-increasing costs of processing transactions forces them to raise prices on all products, even for buyers who pay with cash, and end up fleecing the consumer.
The Merchants Payments Coalition said that the hidden fees cost both consumers and businesses $48 billion annually, and have tripled in size since 2001. That claim was bolstered by a recent report from the Government Accountability Office (GAO), which said that both interchange fee pricing and structures were becoming too large and complex, and that the market power of the banks made it easy for them to set prices.
The Coalition spoke to several retailers who supported interchange reform, emphasizing that the fees hurt their ability to do business even more during bad economic circumstances.
"With the unemployment rate at 10 percent, we need to do everything in our power to create new jobs," said Howard Tuthill, owner of Columbine Market in Gypsum, Colorado. "Reforming interchange means that I have to pay less to the credit card companies and can start hiring again."
Congress has introduced several pieces of legislation in recent years to enable retailers to negotiate interchange fees openly with banks, and to investigate the possibility of antitrust violations by the cardholders, but none of the bills have become law.
