Wednesday, November 02, 2005

Card Consequences (The Monitor)

Consumers who borrowed to ease gas-price burden now face credit calamities

(Extracted text, click here to view entire article)

....But consumers aren’t the only ones feeling the crunch of the credit card aftermath. Major credit card companies are gaining huge profits from high gas prices because of fees banks charge retailers to process credit card transactions. Credit card fees are high and growing, said Jeff Lenard, spokesman for the National Association of Convenience Stores. Fees cost a gasoline station about 3 percent of the transaction. According to the NACS Web site, the largest component of credit card fees: interchange, which is roughly two-thirds of the fees charged to convenience stores.

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.

"Credit card companies are collecting a tidy sum of when the time the card is swiped and the bill is ultimately paid," Lenard said. "These fees charged to the retailer are a hidden tax on consumers — they defy logic."

In the last year, 70 percent of all motor fuel purchases are paid with plastic. Credit card companies end up making more profit on a gallon of gas than the retailer, Lenard said.

Many convenience stores are charged higher interchange rates set by the card associations whose members are card-issuing banks. Each type of card carries different fees that reflect factors like fraud rates, risk factors, transaction volume and processing path. American Express and Discover also set interchange rates, but operate as independent entities as opposed to the association approach that governs Visa and MasterCard, according to the NACS

(source: The Monotor]