Retailers Shortchange Customers in Credit-Card Fee Fight

Retailers Shortchange Customers in Credit-Card Fee Fight

September 30, 2009
Originally published in Newsmax

7- Eleven and other retailers, who rightly complain about costly
government mandates in health care and other areas, are hitting Capitol
Hill to offer Congress members and their staffs a supersize serving of
hypocrisy.

7-Eleven is trying to force a "big gulp" of big government down the
throats of American consumers. If Congress acts on 7-Eleven's
misleading petition to put price controls on interchange fees,
consumers will pay the price through the reduction of credit card
reward programs such as frequent flier miles, and the possible return
of annual fees. Credit unions and community banks will pay the price
too, in higher costs that will make it more difficult to offer cards at
all. This could force their customers to abandon their local lending
institutions if they want the convenience of credit and debit cards.

Contrary to the spin of the 7-Eleven and other big retailers,
interchange fees, also called "swipe fees," are only levied on
merchants, and none of the major legislation currently before Congress
would require retailers to pass on one penny of their resulting savings
to consumers. Australia's recent experience with interchange price
controls, for example, resulted in no tangible benefits – but plenty of
added costs – for consumers down under.

John Simon, a top regulator at the Reserve Bank of Australia,
recently told a conference of the Federal Reserve Bank of Chicago that
there was no evidence of retailer savings being passed on to Australian
consumers, according to the Credit Union Times. Yet the Australian
credit card holders faced plenty of costs to "make up for" the retailer
costs in terms of higher fees and fewer rewards such as frequent flier
miles, according to a study by the U.S. Government Accountability
Office.

Community banks and credit unions, which have lower profit margins
on their credit and debit card offerings, would also lose out. In
Australia, the Credit Union Times reports, "a cap on card interchange
similar to one promoted by some U.S. retailers has turned Australian
Credit Union card programs from being contributors to their bottom
lines to net money losers." Similarly, Mike Clayton, head of Champion
Credit Union in the small town of Canton, North Carolina, says price
controls on interchange fees could "put us into a deficit on that card
program."

There are a variety of options for retailers in credit card payment
services, such as new online methods of payment, to ensure competitive
pricing. The Competitive Enterprise Institute also supports expanding
the ability of retailers to form their own affiliated banks, or
industrial lending companies to do their own card processing if they so
choose.

But lawmakers should also realize that credit and debit card
processing is not free, and retailers would not be accepting cards if
they did not lead to more purchases in stores and reduce the costs of
alternatives such as carrying cash. Before credit cards were so
prevalent, expensive armored cars hauling cash from retail stores were
a common fixture.

In short, there is no such thing as a free lunch, and lawmakers
should not enable 7-Eleven and other retailers to soak consumers with
more fees.