Amendment On The Way For Credit Card Interchange Fees

Not many credit card holders are aware that whenever they use their credit cards to pay for their purchases, the merchant or store that who they are dealing with are charged interchange fees. Furthermore, these interchange fees ultimately end up on the price tag of whatever item that the card holder is buying, passing the interchange fee cost to the buyer and increasing the actual price of the item.

The issue of interchange fees is a hotly debated one. On one side are the merchants who see interchange fees as too costly for their business. On the other side are the credit card companies who insist that interchange fees are simply the cost of using their services.

The fact is that, for every credit card purchase that passes through a merchant, around 2% of the total transaction is collected by the credit card companies as transaction fees. The actual amount of the fee varies depending on the credit card used, the company and the rewards system in place. It is important to keep in mind that the 2% transaction fee that credit card companies charge is not made transparent to consumers. They are actually filtered down to the tag price of the items on sale in the shop or store. Thus, every consumer, whether he or she is using a credit card or not, ultimately pays the price for interchange fees.

The Merchants Payment Coalition is a group of businesses and merchants that are lobbying for a change to fairer credit card fees. According to them, during the last year, American consumers shelled out more than $48 billion paying for credit card transaction fees. This is the highest amount paid to transaction fees in any industrialized country.

According to the statements from credit card companies, interchange fees are there to cover for the cost of processing the payment which the credit card companies incur. However, only 13% of the total fees account for the processing cost. The remaining amount goes to other costs from the credit card company such as for marketing costs and rewards payments. After those, the remaining amount is profit for the credit card company.

At the moment, a bill amending the Truth in Lending Act called the Welch-Shuster Credit Card Interchange Fees Act of 2009 has been introduced in Congress and referred to the House Financial Services Committee. The aim of the Act is to “prohibit unfair practices in electronic payment system networks”.

If the bill passes, credit card companies would be forced to disclose their swipe fee rates and the Federal Trade Commission would be empowered to be a power check to credit card companies. There is also a possibility that the bill may allow negotiations between credit card companies and merchants regarding interchange fee rates.

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