As readers of this blog know, I’m a free-market kind of guy. But this doesn’t mean, however, that I’m indifferent to organizations that gouge me on a daily basis. Lately, it seems that everyone wants to sink their teeth into my backside – the state, the feds and now the banks.
When it comes to the banks, I’m talking about the interchange fees paid by merchants when they accept a credit card payment. As you might expect, my practice accepts all major credit cards. I have a point of sale machine hooked into my network and I can process credit card payments securely over the Internet. The problem is the fee I pay on each swipe of the card.
What people don’t know when they swipe that card is that the merchant receiving the payment pays a percentage of the transaction – sometimes as high as 5% – as a transaction or “interchange” fee. Sometimes there are monthly fees as well on top of the transaction charges. If you’re in a business with tight margins to start with, that 3-5% percent can really eat into the profit. And the fees come on top of the already high interest charged the borrower.
The point is, though, it’s every customer who ends up footing the bill – even the ones who pay cash. Those fees – around $47 billion a year – amount to around $450 per household. Most merchants simply pass on the cost to the customer. They have no choice.
Now, should banks and credit card companies be permitted to charge a merchant fee to cover their costs and make a bit of money?. Absolutely. The fees currently charged, however, are far in excess of actual costs. They’re simply a predatory cash-cow to the credit card companies.
The really wretched part of this business model is that it encourages poor lending practices – the same stupid practices that led to the sub-prime disaster. Think about it: because of the fat fees they charge, banks and credit card companies have every reason to give credit cards even to irresponsible borrowers – as in the kind who don’t pay their credit card bills.
If you’re as disgusted as I am, take a look at UnfairCreditCardFees.com, which was organized by a coalition of national and state merchant organizations.
I’m tired of taking it in the shorts. You should be too.
UPDATE: A reader pointed out that a local television station has just done a story on this very subject.
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{ 1 comment… read it below or add one }
There has been talk in Congress to change these hidden fees.
If the Democrats want to help lower unemployment they should give small businesses a chance to hire more people. Currently, interchange fees are the third highest expenditure after benefits and salary!
Imagine with a reasonable fee (not the current percentage) how much more money a business would have to bring on a few new employees.