Estimates show that in 2008 banks collected $38 billion to $46 billion in swipe fees alone, and some in Congress say that's way too much and a sign that too few banks control the credit-card business, said the report.
Here is a transcript of the report:
Gerri Willis, host of CNN's Your Bottom Line: While consumers are outraged about sky-high credit-card fees, businesses across the country are feeling the crunch, too. CNN national political correspondent Jessica Yellin joins us now to break down interchange fees.
Yellin: Gerri, I didn't know these fees existed until I reported this story. Banks make money every time you or I use a credit card. They charge merchants a fee just for accepting the card and, no surprise, businesses pass that cost on to you and me.
According to the National Retail Federation, in 2008 the average household spent $427 on these interchange fees alone. And some in Congress are finding it hard to change that.
Yellin: It's a hidden cost store owners say is crippling business; it's called a swipe fee. Each time a customer uses a Visa or MasterCard, business owners like Keith Lipert have to pay a fee and that's passed on to consumers. [This item costs] $125?
Keith Lipert, Gallery Owner: That's $125. So the interchange on $125 would be about $2.
Yellin: The fee can be as much as 3% of your purchase, and it adds up. Lipert says swipe fees cost him as much as rent and health care.
Lipert: As a shopkeeper, I'm getting a service or a convenience for the credit-card companies, and that is fair. My objection is that I'm not allowed to negotiate.
Yellin: Credit-card companies say it's the cost of processing transactions. What are they really getting for that fee? What's the service that's being provided?
Trish Wexler, Electronic Payments Coalition: So they'll get almost instant payment and guaranteed payment for it. Whereas my card issuer, I won't pay them for another 30 days, so there's the float on the funds, which is a big component.
Yellin: Estimates show that in 2008 banks collected $38 billion to $46 billion in swipe fees alone. Some in Congress say that's way too much and a sign that too few banks control the credit-card business.
Rep. Peter Welch (D-Vt.): What we've seen, really, is that the financial services industry is starting to make its money not so much by providing reasonable service, but by manipulating price by having a lot of hidden fees, by having a lot of extra transaction costs in running up their profits by doing that in taking advantage of monopoly power.
Yellin: Several bills before Congress would reduce these rates by allowing businesses to negotiate with card companies, but don't expect those bills to pass any time soon. The industry, which is spending big on lobbyists, insists lowering swipe fees would end up costing consumers in other ways.
Wexler: If interchange rates are forced down below what is sustainable for a card program, then rates are going to have to go up or rewards are going to have to go away. Those are the facts.
Yellin: But Lipert says that Washington should stand up to the banks.
Lipert: We need, as a country, to address this.
Yellin: Now, there's another reform some in Congress are pushing for now—they want to let retailers charge a lower price if you pay cash. And in a different slightly higher you use your credit card. That way at least only credit-card users are paying these swipe fees, but Gerri, no surprise, so far banks and credit-card companies are fighting that reform, too.
Willis: All right, so obviously we're seeing yet another fee being passed on to us through retailers. But, what can you do as a consumer?
Yellin: There are two things you can do. If you have to use your credit card, use your debit card, the swipe fee on that is lower than actually using a credit card. And the other is, if you choose a card that doesn't have as many rewards on it, the swipe fee is lower, the banks are actually charging you for those rewards with that swipe fee.
Willis: All right, and you can always pay cash, there's always cash. What other reforms might happen?
Yellin: Well, they're talking about, first of all, disclosing these fees, so that you know what you're paying. They're talking about also reducing the cost of...fixing the cost of rewards charges so that you know what you're paying on rewards cards and they can't charge you more for that.
But here's the really important one. There's a discussion of allowing the Federal Trade Commission to determine if these practices are anti-competitive. That's because these big banks are getting all together and deciding what the swipe fees should be and some say that's colluding, that's monopoly and it should change.
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