We heard a lot from the presidential and congressional candidates about keeping taxes low for the middle class and helping small businesses create jobs. They said nothing, though, about an unknown and hidden “tax” on the use of credit cards that hurts every consumer and merchant. It’s called the swipe fee — the fee that merchants (and, ultimately, consumers) pay to banks to accept a card.
Even though swipe fees are invisible to consumers, they result in higher prices, even for those who mostly pay with cash and rarely use a card. The only difference between swipe fees and taxes is that the $50 billion in revenue that the swipe fee generates every year goes directly to banks rather than to the government. Every American household on average pays about $427 a year in the swipe fee “tax.”
Banks have a right to charge for the use of their cards and make a profit if they earn it; however, they don’t have a right to price-fix, which is exactly what they are doing. Visa and MasterCard each set the fees for their banks, and none of the banks compete. With the fee hidden, competitive market forces never have a chance to break the fixed prices. That’s wrong and is what makes swipe fees more like an unavoidable, hidden tax on business rather than a legitimate private charge that goes into the cost of doing business.
The swipe fee is the second highest operating expense for merchants, an especially serious burden for small businesses. And it’s the fastest-growing expense these businesses face, rising much faster than, for example, health care costs. While health care has received a lot of presidential attention, swipe fees haven’t. But they should and here’s why:
The cost to swipe cards has tripled in the past decade. Some merchants actually lose money on small card transactions for items such as a cup of coffee or a snack. And the fee is not properly disclosed or subject to competitive market forces. It is a pure power grab by banks that have worked with the dominant credit card companies to take unfair advantage of Americans for years.
When a consumer swipes a credit card, the bank takes 2 to 3 percent of the purchase price. For every $1,000 in credit card purchases, that amounts to $20 to $30. It goes almost always to a giant “too big to fail” bank reaping the benefit. A mere 10 banks get much more than 80 percent of credit card swipe fees. In fact, they use that money to further exploit their dominance over community banks and credit unions. It shouldn’t be that way.
Consumer and merchant groups, such as the one I represent, have been advocating in Congress for reform legislation for both debit and credit cards for years. In 2011, Congress responded by reforming debit card swipe fees and limiting the amount of fees that could be centrally price-fixed for the largest 100 or so banks. This reform left the door open to (and did not regulate at all) fees that banks would be willing to compete on and even centrally set fees for more than 99 percent of banks that are smaller than the biggest of the big. Debit reform has worked — merchants are better off, consumers are saving, and smaller banks and credit unions are thriving.
Meanwhile, credit card swipe fees remain exorbitantly high and a huge abuse of Americans’ wallets. These fees are seven to eight times higher in the U.S. than in Europe. In fact, swipe fees in the United States are the highest in the industrialized world. We pay higher fees than countries that have reined in Visa and MasterCard’s abuses, and we pay higher fees than countries that have done nothing. The credit card industry simply takes advantage of us because they can. U.S. consumers use cards without knowing the impact it causes, and merchants are trapped by the stranglehold Visa and MasterCard have. It’s time for all that to change.
Next year, we will be back asking Congress for reforms to credit swipe fees. If our nation’s leaders really want to help consumers and small businesses, they will end swipe fee price-fixing and bring market forces to the card industry so merchants have more options and consumers don’t pay the price.
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