Interchange is the largest component of credit-card fees and has a significant impact on American consumers, who are affected by interchange rates that are among the highest in the world. These rates cost the average American household approximately $232 a year in 2004.
When consumers purchase goods or services with a credit card, the payment is processed through the merchant's bank and the bank that issued the consumer the credit card. The issuing bank charges the merchant's bank a fee to process the transaction. The merchant's bank then adds its own fee for processing the transaction, and passes on both of these fees, collectively known as interchange, to the merchant.
"The credit-card interchange system serves as a hidden tax, both on merchants and consumers, and raises the costs of all products regardless of the form of tender," said NACS CEO Hank Armour. "
And these credit-card interchange fees have rapidly increased over the past several years, despite efforts by individual convenience stores to control these costs or make the competitive market work."
Interchange fees are meant to cover the cost of processing a credit-card transaction and the risk taken by the issuing bank that the credit will not be repaid. However, NACS and the other the plaintiffs say that both fraud costs and the cost of processing are steadily decreasing, while U.S. interchange rates continue to increase.
Interchange fees are substantially higher in the United States than almost any other industrialized country. Other countries have taken action to address the market problem created by these monopolies. Recent changes in Australia and countries in Europe, for example, have decreased rates from about 0.95 percent to about 0.55 percent.
"We are not seeking some form of temporary relief; we are looking for long-term reform of the credit-card interchange fee system," said John Rector, NCPA general counsel.
"The current system discriminates against small, independent businesspersons, and there is no basis for that discrimination. We ultimately seek a competitive and fair interchange fee system.
Interchange is much higher in the United States than any other country, and there is no legitimate basis for that."In May 2005, The Merchants Payments Coalition Inc. (MPC), a broad coalition of business organizations, including NACS, applauded the Federal Reserve Bank of Kansas City for holding a conference on credit and debit card interchange fees, saying that the rapidly escalating fees amount to a hidden tax on U.S. consumers."
The fees that the credit-card companies charge defy logic and they are using them to increase profits far more than to provide any meaningful benefits to retailers," said NACS senior vice president for research Teri Richman, who serves as the MPC secretary."
Credit-card company rules and some state laws effectively prohibit retailers from providing discounts for cash or checks in all but a handful of situations. As a result, consumers pay more even when they don't use their cards. It's time for this constant picking of consumers' pockets to come to an end," Richman said.
(source: Convenience Store News)
