Who is to blame for gas prices approaching five dollars a gallon in some parts of the nation and well over $3.50 even at the cheapest pump? Is it President Obama, unrest in the Middle East, or greedy oil barons? How about credit card companies?
Yes, this week credit cards are the latest fall guy in the debate over whose fault it is that customers are getting squeezed at the pump and prices keep marching upward. At issue specifically is the “interchange fee” that credit cards charge, otherwise known as “swipe fees.”
Swiping Our Way to the Poorhouse?
Every time you make a purchase with your credit card, an interchange fee is applied – essentially a transaction fee. This fee is a percentage of the purchase, so it`s higher on a $100 charge than a $10 one even though the effort ofprocessing the larger transaction does not increase for the networks. The National Association of Convenience Stores (NACS) estimates that interchange fees add seven cents to each gallon of gas they sell and cost them $11.1 billion in 2011.
Percent of 4 Dollars per Gallon of Gas Paid as Interchange Fee*:
0.07 cents x 100% /$4 Per Gallon = 1.75 %**
*Actual national average price per gallon on the day of this article = $3.939
(Source: U.S. Energy Information Administration)
**Based on NACS`s “7 cents” claims
Along with those statistics, they issued a statement saying “When fuel prices go up, banks receive a windfall without providing any additional services or value to merchants or customers.”
Meanwhile the Merchants Payment Coalition put out a “Talking Points” memo stating that “American consumers have a fundamental right to know how much the interchange fee is on any transaction that involves a credit or debit card,” claiming further that “Visa and MasterCard control a system that is fundamentally anti-competitive.”
Durbin Debit Limits Don`t Touch Credit
The Durbin amendment, which went into effect last fall, put a cap on the fees that can be charged for debit card transactions, but as yet no such limitation has been imposed on credit card transactions. That`s part of the reason that credit cards are able to offer rewards programs offering 1-2% off all purchases; it these built-in fees go away, so might the generous rewards programs that credit card customers have come to take for granted.
In response to the hubbub, Craig Vosburg, Group Executive in U.S. Market Development at MasterCard, issued a press release titled “Straight Talk at the Gas Pump” on the company`s “The Heart of CommerceTM Blog” yesterday. In it, he asserted that the accusations about MasterCard`s interchange fees “couldn`t be farther from the truth” and said that “the average net effective cost of a MasterCard transaction at the pump has actually decreased by 15 percent since 2009.”
Further, he stated that MasterCard has had a cap on the interchange fees they charge at gas stations since 2007, providing free interchange on fuel transactions above $50, according to Vosburg.
Gallons of Fuel “taxed” by MasterCard at the pump:
$50 Limit / $4 per Gallon = 12.5 Gallon of Gas are being taxed, letting stations keep more money made on gas guzzlers with bigger tanks.
Craig also says that merchants “retain the ability to offer their customers a discount when paying for their fill-up in cash or any other payment method,” effectively putting the blame back on the convenience store by implying that they should offer greater discounts to benefit drivers suffering from high gas prices.
What Price Freedom?
Whoever is to blame, whether credit card companies, convenience stores, Obama, or the soon-to-be-determined GOP nominee in this year`s election, one thing is certain: gas prices are out of control and consumers are the ones paying the price.
This week, the cheapest gas in the country can be found in Utah, specifically Ogden, where the average gallon costs $3.66. Hawaii has the dubious distinction of boasting the highest price in the nation, at $4.85 per gallon in Wailuku, where Networks are raking-in top profits.
The good news is, with summer coming, it`s a great time to get your bike out of the garage and pedal your way to pump-price freedom.
Don`t forget your helmet!