Visa and MasterCard seen as major culprits in predatory credit card processing fees and practices
January 9, 2007, (Las Vegas, NV)—Credit card interchange fees and abusive practices were discussed at the 40th annual Consumer Electronics Show being held in Las Vegas, NV this week.
At the "Photography Fights Back!" panel discussion today, Mitch Goldstone, the president and CEO of 30 Minutes Photos Etc., discussed the challenges that face many business owners and consumers who use credit cards for purchases and payments. Interchange fees are a percentage of each transaction that Visa® and MasterCard® member banks collect from merchants every time their credit or debit cards are used to pay for a purchase.
The fee varies with the type of merchant transaction but the average is nearly 2 percent for most credit card purchases. Goldstone, in his comments, called on members of the house and Senate to seriously consider the potential benefits of oversight and regulation of these fees.
Speaking from the Venetian Hotel, where educational sessions for the Consumer Electronics Show is taking place, Goldstone commented, “What Visa and MasterCard are doing hurts the merchant, the consumer and in reality, the country. I find it ironic that we are here at the 40th anniversary of the Consumer Electronics Show and that the bulk of the products here will be purchased with credit cards that operate through a 1960’s fee structure.”
In 2005, U.S. consumers paid more than $30 billion in interchange fees when using MasterCard and Visa cards, double the amount they paid in ATM fees and late fees combined. Another odd aspect of interchange fees is that the United States pays the highest rate despite having the most advanced technology. For example, United Kingdom consumers pay roughly half the U. S. consumer rate, and Australian consumers pay a third. A recent survey also discovered that the United States and Canada are the only countries that have seen recent increases in interchange fees. Fees in the U.S. are among the highest for any industrialized nation and more than double many other countries.
“It’s no coincidence that U.S. consumers pay the highest rate as they are the most active card users. Other countries have recognized that the interchange fee is a hollow, almost punitive, processing fee that doesn’t cover any provided service,” said Goldstone, who is a lead plaintiff and class representative in the multi-billion dollar antitrust class-action litigation against Visa and MasterCard. “It made sense in the 60s, 70s and maybe even the 80s when paper transactions and human interactions and approvals were the norm. Today, the same transactions are approved and funds delivered within seconds, therefore there is no need or rationale for the fee.”
In an example of how interchange fees function, imagine a consumer making a $100 purchase with a credit card. For that $100 item, the retailer would get approximately $98. The remaining $2, known as the merchant discount or interchange (which is actually a fee), gets divided up. About $1.75 would go to the card issuing bank and $0.25 would go to the retailer's bank. Under the current structure, these fees are an unnecessary tax on merchants, consumers and burden economic growth.
Goldstone is also co-editor of WayTooHigh.com – The Credit Card Interchange Report which provides international daily news and community updates on interchange issues.
[Source: WayTooHigh.com]
