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Interchange Fees Fleecing Consumers, Retailers Say

Credit card processing fees under growing attack

December 4, 2009

An interchange fee is the fee paid by the merchant's bank to the bank issuing the consumer's credit card. The fee is charged back to the merchant and the Retail Industry Leaders Association (RILA), a trade group, says the fee is ultimately paid by the consumer.

In the wake of credit card reform, interchange fees have come under closer scrutiny in Washington. Last month the Government Accountability Office issued a report suggesting that credit card companies and their issuing banks profit significantly from interchange fees while merchants and consumers face escalating costs.

Since then the RILA has pushed for Congress to take action, as it did with the new law passed in May to limit credit card abuses. The American Consumer Institute is also calling for reform of interchange fees, claiming that this holiday season the average household will pay $337 in so-called swipe fees.

RILA says the burden posed by interchange fees is a drag on business and is making a slow jobs recovery even worse, at least as far as the retail sector is concerned.

"Retail job creation is stifled in part by the rapidly escalating costs associated with credit card interchange 'swipe' fees," said John Emling, senior vice president of government affairs for the group. "Every additional dollar taken by banks through these excessive fees is a dollar unavailable to hire new employees and lower costs for customers."

Banks say interchange fees are necessary to pay for processing credit and debit card transactions. However, RILA says these fees have tripled in the U.S. since 2001, to $48 billion in 2008, despite advances in technology that have reduced other comparable transactional costs. Today, the group says retailers' cost of processing paper checks is less than the cost of accepting credit and debit cards.

The issue has, to date, failed to gain much traction in Congress. Rep. John Conyers (D-MI) introduced the "Credit Card Fair Fee Act of 2008," which would have required lenders possessing "substantial market power" to negotiate with merchants and retailers on terms for fees paid when processing card transactions. However, the bill failed to make it to the floor for a vote.

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