With the release of credit card bill, credit card holders can now expect at least some semblance of fairness from their credit companies. Merchants and other businesses do not have such luxury, however.
For merchants and other businesses, accepting credit card payments from customers can be a financial pain. Every time a customer uses his or her credit card to pay for a purchase, the credit company issuing the credit card will charge the merchant a percentage of the purchase. The fee, known in the industry as “interchange fees”, ranges between 2% to 5 %. When credit cards were relatively new, the purpose of interchange fees was to pay for the administrative expenses a credit company incurs for processing a payment via credit company. However, modern technology have drastically lowered the cost of credit card payment processing. Credit card companies still continue charging interchange fees, though and, according to figures, since the year 2001, the revenues that credit companies see from interchange fees have risen up to 120%.
Complaints against the unfairness of interchange fees are usually met with the explanation that the fees are essential for covering the cost and the risks of credit card transactions. According to them, these have grown significantly through the years. Critics are, however unimpressed, saying that it is the credit companies who have increased these themselves by proliferating credit cards to consumers.
Merchants are currently fighting back against the credit card companies over the issue of interchange fees. The current system is very much tilted towards the credit companies. They set the interchange fees unilaterally and the fees are not issued at a flat rate so that interchange fees can be higher for more prestigious types of credit cards.
The merchants currently have the Credit Card Fair Fee Act in the works at Congress. The Senate version gives merchants the power to negotiate the interchange fees with the credit companies. Disagreements are to be settled by an independent, three person arbitration panel. The bill would also require credit companies to provide better transparency measures for transactions with merchants. The House version of the bill is basically the same.
Credit companies are actively fighting the Credit Card Fair Fee Act. They are lobbying against the passage of the bill and are running several advertisements which basically say that merchants ought to pay their share. Merchants are arguing that they are already paying their share and have had to pass on the costs to consumers because of the high cost of that share. Credit companies are countering that, should they lower their interchange fees, merchants may pocket the money and not pass on the savings to the consumers. At the end of the day, it is the consumers who get hit worst.