Some victims of interchange fees demonstrated in the grounds of the U.S. Capitol. These interchange fees are the amount which the customer pays to the banks and card networks. The protesters are calling the government to limit these fees.
Credit card interchange fees have increased in recent years. There were bills passed to limit these fees. Now merchants can collect lower fees from the credit card companies and they are also permitted to give discounts to their customers when they will pay in cash.
However some big companies said that interchange fees are needed for the funding of electronic payments innovation that could give more convenience to their customers. But as a customer you should know these myths about interchange fees.
The first myth is merchants are using interchange fees to get more money. This is not true because the real people who benefit from the increasing interchange fees are the banks. As Zoe Lofgren said, banks are greedy. The very large companies are posting higher interchange fees to gain more profits.
Some credit cards companies can also be blamed. Interchange fees solicited were used to pay pieces of junk mails. However, credit card experts that this activity is not acceptable. A credit card expert says that there is no correlation of the interchange fee and the numbers of mailings the customers get.
The intense competitions among the card companies drive the interchange fees to get high.
So interchange fees are often used to fund the rewards programs that come with certain cards.
It is more expensive for small neighborhood banks and credit unions, for example, to provide credit transactions because they get fees from much fewer transactions than the big banks.
The second myth is that people know where their savings go if the interchange fees are regulated. Some form of arguments said that lower fees are the only means of getting more from the customers. Last 2002, the Reserve Bank of Australia applied a cap on interchange fees and also allowed stores to surcharge customers who use cards-policies similar to what is being considered in the United States. The U.S. Government Accountability Office however found out that no evidence supports that lower interchange fees can reduce retail prices.
The third myth about the interchange fees is that limiting fees is the only answer. There are still burdens that can arise without directly prohibiting fees over certain levels. There should be transparency between the credit card issuers and merchants about their payment agreements.
Currently, when a business owner signs an agreement to be able to use credit card payment in his or her store, the agreement restricts the owner from disclosing the size of the fee or from giving a discount to customers who pay in cash.
There was a bill proposed by Peter Welch, Congressman from Vermont that would let credit card companies to reveal their interchange rates and terms to their customers. It would allow great flexibility in business pricing.
Such a change, however, wouldn't do much to benefit customers who like to keep cash to a minimum. But it's not just Washington that could do something to reduce the burden of interchange fees. States and localities could do it too.