CSD: Fighting Credit Card Costs

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Dec 29, 2009
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By Howard Riell

Through
a special arrangement, presented here for discussion is a summary of an
article from Convenience Store Decisions magazine.

Is there relief
ahead for exorbitant credit card fees? The answer is yes. But first, there’s
a fight to be fought.

“I think that
there is hope on the horizon,” said Keith Jones, government affairs director
for 7-Eleven Inc. which led a consumer petition drive opposing credit card
fees that drew 1.7 million signatures.

“Fees having
gotten to the point now where they are, frankly, out-of-control,” Mr. Jones
said. “If you are selling gas right now and the price of gas spikes again,
when you factor in the interchange, we will be losing money selling gas.
The formula doesn’t work in the c-store industry; it is really unfavorable
for low dollar transactions.”

The legislative
front is the most obvious and the most public option for reversing the
upward trend on card fees. There are multiple bills currently making their
way in Congress, all of which would help industry retailers.

What Mr. Jones
described as a second front is the ongoing civil litigation in the form
of class-action lawsuits and potential violations of antitrust laws. A
third area, just developing, is that a number of state attorneys have indicated
an interest in wanting their own antitrust consumer protection investigations
on interchange fees and practices from credit card companies. The final
crucial factor is that retailers across all industries appear to be organized
as one cohesive unit thanks in part to cross-channel groups like the Merchant
Payments Coalition (MPC).

As retailers
wait for relief from credit card fees, progressive chains have been diligently
developing alternative solutions for reducing costs on their own. Last
year, Flash Foods Inc. in Waycross, Ga., introduced what it calls its Go
Blue program, which effectively turns its loyalty card into a payment card,
according to Chief Information Officer Jenny Bullard. Benefits include
savings of three cents per gallon at the pump at the company’s more than
170 stores in Georgia and Florida.

“We’re trying
to hit our credit–and even our debit card customers,” Ms. Bullard
said.
“When people ask why we’re going after our debit card customers, I tell
them it’s because last year our debit transactions cost us almost as much
as the credit-card transactions because of the new fees put in place by
Visa and MasterCard.”

But retailers
can still do more to push reform by talking to their elected officials
and customers. “Collectively, they can make their voices heard,” said Jeff
Lenard, vice president of communications for NACS.

“At the end
of the day,” Mr. Jones said, “Visa and MasterCard are going to look back
and realize that they were their own worst enemies. They are going to push
the rates to a point where the courts will act, Congress will act or the
Federal Reserve regulators will intervene and put a stop to it. I mean,
it’s really very difficult to justify the fact that American retailers
pay two times the average interchange rates as the rest of the world.”

Discussion
Questions: Do retailers have any alternatives when it comes to fighting
credit card fees? What’s the likelihood that credit card free reform
will happen in the next year? Will loyalty programs become a meaningful
way to lower credit card fees?

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9 Comments on "CSD: Fighting Credit Card Costs"


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Bill Bittner
Guest
Bill Bittner
11 years 4 months ago
There is a much broader question that credit card fees presents besides just retailer charges. There is probably not a better example of a “common enemy” than the credit card companies. Both the businesses that accept them and the consumers who use them are tired of the fees. The fundamental business model depends on getting consumers into a high transaction fee scenario. That is why the cards are often “free.” Credit card companies will argue that their model has made credit available to millions who would not have otherwise had access. But with default rates approaching 15 to 20 percent, maybe some people should not have a credit card. Instead of raising fees to recover defaults, maybe a little more should be spent on screening. As we have watched Congress bungle through any attempt to control the financial industry after they nearly drove us into a second depression with their “instruments of financial destruction,” it is hard to believe Congress will do anything about credit card companies. This is the real question that credit card… Read more »
Len Lewis
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Len Lewis
11 years 4 months ago

After mortgage relief, credit cards are going to become the next battlefield in consumer defaults. At some point, the bureaucrats will step in to stop the default on consumer credit card debt, which is going to make the mortgage debacle look like child’s play. In all that rhetoric there may be some relief for retailers, but don’t count on it.

Are there alternatives? Well, you could pay exorbitant fees to trade groups to write angry letters on your behalf. Or, you could stop taking the highest fee cards. Everyone’s going to keep plugging away on this issue. But maybe it’s time to get consumers involved and to effectively tell them how it’s impacting their weekly grocery bill.

Gene Hoffman
Guest
Gene Hoffman
11 years 4 months ago

It’s been said that you always hurt the ones you love and credit card companies love retailers and their business. So, in that context, credit card companies will continue to hurt and exploit their current advantage in any power play romance with their “loved ones.”

Retailers could combat credit card fees by returning to cash only operations but they won’t do that for fear of losing consumers who’ve been lured into being credit card addicts.

Some relief might come from credit card reform next year but retailers should not underestimate the guile and greed of credit card issuers. And retailers will grin and bear it.

Ryan Mathews
Guest
11 years 4 months ago

Let’s not forget supply and demand here. If people stopped using credit cards so much and more and more retailers became less promiscuous about the cards they take, maybe the credit card companies would be forced to reform themselves. I agree credit cards may be the next great battlefield, but let’s be honest here–America’s addiction to credit is the root cause and while we’ve seen major reductions in credit use, we’re still light years away from customers and/or retailers having sufficient leverage to force meaningful reform.

Camille P. Schuster, PhD.
Guest
11 years 4 months ago

Change will happen because banks are facing a lot of pressure and need good cash flow. Reform is an entirely different question. Credit card reform is tied into banking reform and that does not seem to be getting anywhere quickly.

Gene Detroyer
Guest
11 years 4 months ago
In the past I’ve heard several people say that credit card companies require merchants to agree not to charge more for credit cards. However, FDIC rules suggest something different. FDIC. Rule 167. Use of cash discounts (a)(1) With respect to credit card which may be used for extensions of credit in sales transactions in which the seller is a person other than the card issuer, the card issuer may not, by contract or otherwise, prohibit any such seller from offering a discount to a cardholder to induce the cardholder to pay by cash, check, or similar means rather than use a credit card. So discounts for paying cash are perfectly legal, and what’s more, credit card companies seem to be enjoined prohibiting the practice. However, charging extra for the use of credit cards is illegal according to FDIC laws. (2) No seller in any sales transaction may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check, or similar means. The above paragraph prohibits credit… Read more »
David Livingston
Guest
11 years 4 months ago

I like Aldi’s way of dealing with credit cards. They just don’t take them. Then other retailers like gas stations, you end up paying more if you pay cash because their credit cards give you a 5% rebate. I really don’t see any big changes happening. Try going to a car dealer; they have a heart attack if you try to pay with a credit card. It’s a confusing mess.

Mark Johnson
Guest
Mark Johnson
11 years 4 months ago

Interesting article in the Wall Street Journal today about Bank of America and their approach moving away from credit cards and the stream of income that they have created.

When banks prey (I am a conservative libertarian) on their consumers there is going to be a backlash and that backlash will inevitably lead to consumer “protection” by the state.

Daniel Bolger
Guest
Daniel Bolger
11 years 4 months ago

As a car wash operator with an unmanned automated car wash, we have no alternative to using credit and debit cards. Eighty percent of our business is on credit cards. While we can shop for various providers, they are all pretty close to each other. As a conservative with desires for minimal governmental intervention, I am in powerless to do anything but pay whatever they demand and hope that if I switch to a less costly service, the payments will be promptly processed to my bank.

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