Argument Over Interchange Fees Continue As Opposing Sides Jockey For Consumer Support

Credit card companies recently gave way over the issue of overdraft fees, a huge win for consumers though it required little adjustment in the part of credit card companies. Basically, credit card companies stopped automatically enrolling their credit card holders to overdraft protection programs and made the service optional, a very simple change in policy, which potentially saves consumers millions in overdraft fees. Inversely, the millions in overdraft fees that consumers dodge translate to millions in lost profits for credit card companies.

Now, credit card companies are trying to deal with an attack against another major profit source: interchange fees.

The issue of interchange fees has long been a sore area between merchants and credit card companies. Interchange fees are a major profit source for credit card companies and a serious profit sink for merchants.

According to the Nilson Report, merchant fees overall collection, including those collected by processing middlemen and by banks, increased by 78% from the $25.5 billion collected in 2003. The Federal Deposit Insurance Corp. places the total revenue that banks saw from service charges on deposit accounts at $39.5 billion for last year.

For merchants, interchange fees are a huge business expense. Typically, interchange fees are composed of a flat transaction charge and a certain percentage of the purchase amount. This varies depending on the type of merchant and on the type of card. Generally, debit cards have lower interchange fees than credit cards. However, the continuing popularity of debit cards has also been accompanied by a rise on their interchange fees.

The fight between merchants and credit card companies over interchange fees has been going on for some time. It has intensified now as merchants take advantage of the increased consumer awareness over credit card practices, which led to the passage of the new Credit CARD Act. Credit card companies also took bailouts from the government, which are essentially the taxpayer’s money, while still engaging in consumer-unfriendly practices has also increased consumer resentment against credit card companies, further fueling the chances of merchants to win the fight against interchange fees.

Both camps are now busy jockeying for support from consumers. 7-Eleven Inc. recently collected 1.6 million signatures for a call to congress to address the issue of interchange fees. Major credit card issuers Visa and MasterCard have been quick to attack this petition saying consumers were ignorant of what they were signing.

As the interchange fee debate continuous, it is clear that consumer opinion about it is going to be a major driving force. Whether any interchange fee legislation will prosper or not depends greatly on how strong voice consumers can bring for or against it.