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Most of us are all too painfully aware of credit card costs in the form of interest charges, late fees, and over-the-limit fees. However, did you know that you could be spending, by some estimates, an average of about $500 a year in ‘hidden’ credit card fees, which no one tells you about?
We’re talking about the “swipe fees” charged to merchants and vendors every time you charge a purchase to your credit card. Technically known as “interchange fees,” swipe fees refer to the percentage of each credit card transaction, which credit card companies collect from retailers whenever a credit card is used.
In the U.S., the interchange fee on credit cards averages 1-2 percent of the total purchase. While that may seem like small change, by the time it’s multiplied by millions of credit card purchases, it turns into real money. The interchange fee costs retailers millions of dollars every year and for small retailers in particular, swipe fees make a severe dent in their profit margin. For many retailers, the interchange fee is the second largest expense behind payroll. According to the NACS, the National Association of Convenience Stores, U.S. convenience stores in 2008 paid $8.4 billion in credit card fees, most of which were swipe fees, compared with $5.2 billion in store profits.
Not surprisingly, while technically speaking swipe fees should be paid by the merchants, many merchants opt to pass the interchange fee on to consumers by raising the cost of their wares. The result is higher prices for all, including for people who pay with cash or checks.
This hidden cost of credit card use may be the next credit card issue Congress will take up. The CARD Act of 2009 includes a provision ordering the Government Accountability Office to study the effects of interchange fees on consumers and merchants. Congress may decide to demand that credit card companies provide more information about interchange fees to provide greater transparency for consumers, so they can make their own choice about whether or not to use a credit card.
Credit card companies from their side maintain that interchange fees are just the cost of doing business, and that merchants benefit much more than they lose by making the convenience of plastic available to consumers. Merchants may not like swipe fees, however, in the overall picture they for the most part come out ahead, because people tend to spend more when they pay with credit cards instead of cash.
Even if legislation was introduced to make interchange fees more public, it’s questionable whether it would have any effect on consumers’ choice to use credit cards for purchases. Consumers shouldering credit card debt at up to a 20+% APR may find it only reasonable that retailers carry their share of the costs of credit card usage as well. And even if the interchange fee was lowered, it remains to be seen if retailers would pass the savings on to consumers or simply pocket the difference.
