Friday, September 01, 2006

"Those Hidden Fees" (Rochester Democrat and Chronicle )

The cost of using credit cards should be more transparent.

(September 1, 2006) — When you withdraw cash from an ATM, you know upfront how much you're being charged for the convenience.With credit cards, the true cost is hidden in interchange fees that are charged to the retailer and then passed on to the customer in the form of higher prices. More light should be shined on this process.

With every transaction made by credit card, companies like Visa and MasterCard collect an interchange fee that averages about 1.8 percent of a purchase. It may be more or less depending on the size of the business.

Last year, credit card companies collected more than $30 billion in interchange fees from U.S. retailers. These fees are increasing.Credit card companies certainly deserve payment for their services, but there should be more transparency. The Federal Trade Commission does not require companies to disclose their interchange fees, and nearly all credit card contracts prevent retailers from showing the interchange fees on receipts. That makes it next to impossible for consumers to tell how much credit card purchases really cost, and customers who pay cash end up subsidizing credit card users.

Last year the U.S. House of Representatives passed a bill to get the Federal Trade Commission to analyze the effect of credit card interchange fees on gas prices. The Senate should do its part to make this happen. This kind of investigation is especially important in light of the more than 50 lawsuits that have been filed accusing Visa and MasterCard of colluding to keep their interchange fees high. Better regulation may be necessary.

Meantime, colleges that are offering financial literacy classes to help students avoid credit card debt should include information on interchange fees. More consumers should understand that the freebies credit card companies offer to get people to use their cards are actually driving prices up for everyone.

[source: Rochester D&C]