Saturday, July 29, 2006

"Credit Card Hike in Fees Hurt Small Businesses" (Commentary: Ohio Rep. Tom Brinkman Jr. (R)- Community Press)

As a state representative, I spend a lot of time talking to local business leaders in my community about the challenges they face to have a successful business.

We enormously appreciate these businesses for the economic contribution they make in our community. They provide jobs for our friends and neighbors, pay state and local taxes, and give back to the community through sponsorships of the local youth baseball and other philanthropic activities. As an elected official, I feel that it's important for me to do my part to help create an environment in which the spirit of entrepreneurship can flourish.

Recently, a growing problem has had an increasingly detrimental effect on small and family-owned businesses. As if rising gas prices and taxes weren't enough, the credit card companies have been hiking their interchange fees. These are the fees that the credit card companies charge merchants for the "privilege" of accepting their cards.

Interchange is probably the biggest credit card fee you've never heard of. Specifically, the interchange fee is a percentage of each transaction that Visa and MasterCard banks collect from merchants every time a consumer uses a credit or debit card to pay for a purchase. The fee varies with type of card, size of merchant and other factors, but averages close to 2 percent for credit card and signature debit transactions. Think of it this way: When gas costs us $3 a gallon, six cents of that goes to the credit card companies.

These hidden fees drive up the cost of goods and services for all consumers whether they pay with plastic, cash or check, and it makes it difficult for our community retailers to make a living. Some of my community's retailers paid more in interchange fees to Visa and MasterCard than they made in profit. That's not fair and it needs to change.

Additionally, Visa and MasterCard wrote the rules that make it virtually impossible for merchants to tell consumers how much interchange fees cost them; the fees remain hidden. Consumers paid more than $26 billion in interchange fees last year, nearly double the amount they paid in credit card late fees and six times what they paid in ATM fees. That's outrageous!

How can this happen? With about 80 percent of the card market, Visa and MasterCard are monopolies and control a system that is fundamentally anti-competitive. Visa member banks collectively agree to charge the same interchange rates. MasterCard member banks do, too. This price-fixing hurts all Americans and must stop.

Just as with ATM fees, consumers have a right to know what their credit cards are costing them. Transparency and competition are good for consumers and merchants alike. Without them, Visa and MasterCard can fix these fees in secret and we all end up paying the credit card companies more and more and more.

It's time for Congress and other regulatory agencies to look into these outrageous fees. When credit card companies are forced to explain their fees, practices and policies in public, consumers win.