Wednesday, November 12, 2008

New Legislation Aims to Curb Credit Card Fees

Credit card fees are a huge pain for small business owners. Every time customers run a debit or credit card a percentage of their purchase goes directly to the banks. For some time now small businesses have disregarded the fees, which also impact consumer prices, as a necessary annoyance. As more and more of them are being forced to watch each and every dollar, however; some in Washington are lobbying for fairness and the ability to level the playing field. Right now few businesses can afford to reject cards because of the frequency with which consumers use them, but for small businesses these seemingly minute amounts of money can make all the difference in the future of their businesses. Merchant card fees are broken down into “an ‘interchange fee,’ which includes an average 1.7 percent of the sale price and a flat per-transaction fee, and a separate fee that goes to the merchant’s bank,” according to a recent New York Times article. The Times offers this example:

Take, for example, a driver who pays for a $1,000 car repair with a credit card. The bank that issued the consumer’s card receives an interchange fee of $17.10 (including a 10-cent flat fee), while the repair shop’s bank gets $4, or four-tenths of 1 percent of the total sale. The repair shop pockets $978.90. According to the Nilson Report, a payment systems industry newsletter, merchants paid $61.56 billion in electronic payment fees in 2007. Lenders received an estimated 82.5 percent of that money.

It’s because of figures like these that Rep. Peter Welch, D-Vermont, introduced legislation to crack down on these excessive merchant fees. Welch told the New York Times that “American merchants are paying the world’s highest interchange fees…with literally no protection.” Welch’s bill will require credit card companies to disclose all rates, terms and conditions to the public. The bill will also allow the Federal Trade Commission to review the practices of credit card companies and prohibit any that violate consumer-protection or anti-competitive laws. The bill would also allow merchants to give consumers who pay in cash a discount and bans penalties on small businesses that process only a small number of transactions. Some small business owners don’t believe that legislation is the way to go, while others are thrilled about the potential for reduced fees.

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