Wednesday, November 09, 2005

What’s the Difference Between Some Banks and Drug Dealers? (

One of the most powerful memories from the University of Southern California was not just graduating from the School of Business and Entrepreneur Program, but from volunteering on the peer-review board.

As chairperson, one particular student infraction still haunts me today. A pledge-master was freely giving drugs to freshman fraternity seekers; upon winning over their confidence he then became their dealer.

Today, the bank-owned credit card associations share an alarming comparison to the abhorrent practices of drug dealers on a different level. Both exploit the vulnerable and both transact illegal businesses. Price-fixing is illegal.

Through mega-marketing campaigns, the banks promote debit and credit cards; which are now the preferred way to transact business. But, in the process, just as how drug dealers clutch new customers, Visa and MasterCard are equally in control of a mega-monopoly. They set the rates, force the customer to pay whatever they dream up and use their prominence to do just what drug dealers do - get people hooked.

Ashland Food Cooperative, owner of a food-buying club in Oregon is actually discouraging its shoppers from using credit cards, as reported in the Mail Tribune ("The Cost of Doing Business" Nov 8). They even have "plastic-free checkouts." Their policy is similar in scope to GREEN FRIDAY - an educational campaign to use cash rather than charge cards on the day after Thanksgiving. The Oregon co-op even beat us to the campaign. They already have signs urging customers to use cash.

Unlike the clandestine world of drug dealers, banks commenced an arsenal of public relations tools to explain the value of their $25-billion dollar annual plundering on the backs of every retailer and consumer in the nation.

Thirty-years ago their interchange fees were justified. It was cost-based. Today, Visa and MasterCard have market power and the banks which control them are involved in unlawful price fixing which harms our entire nation to the tune of $25-billion every year. With recent record gas prices, their take will soar even higher; remember they get a piece of the action for all charge and debit transactions.

The Mail Tribune article interviewed a bank spokesperson who actually helped not their case, but the antitrust, price-fixing litigation against Visa, MasterCard and member banks. "Joe Danelson, regional president of U.S. Bank - which owns Nova - said that even with the fees, cards are cheaper for merchants than checks because studies show merchants lose more money from check fraud than card fees."

And with that fact, accepts Mr. Danelson’s softball pitch and adds that if charge card transactions are cheaper than checks, then why are their no interchange fees when writing a check? Using Mr. Danelson’s logic, card transactions should then have a negative interchange fee. Perhaps he is on to something?