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Is This Fee Fair?
Did you know that the average family paid almost $400 in hidden credit card interchange fees last year, whether it used a plastic card or not?
Lenders collect interchange fees from merchants every time they make a credit or debit card transaction. Many merchants pass the cost on to customers by factoring the fee into their prices. This means that even if you’re not using your credit card to pay for an item, you’re probably still paying interchange fees.
Congress is looking to change the way interchange fees work with the Credit Card Fair Fee Act of 2008. If passed, this bill would require lenders to spell out the terms of credit card processing fees for merchants and retailers. It would also allow merchants to negotiate these fees with lenders.
As you might imagine, lenders aren’t too happy about the bill.
It could result in lower fees for them. They use these fees to pay for their processing and operating costs, as well as their rewards programs. According to this CNNMoney.com article, banking groups claim that this bill would slow down the electronic payment system and hurt businesses. Plus, lenders say they may have to raise their interest rates in order to cover costs. The Wall Street Journal ran an article that listed more ways this legislation could possibly hurt consumers back in May.
So what’s the fate of these interchange fees? CNNMoney.com reports that Congress will probably vote on the bill by the end of the year.
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Merchants pay for a service that they obviously find of value otherwise they wouldn’t accept cards. Like other costs business incurs to bring their goods and services to market, these fees are embedded in the cost of what they sell and what we buy. The amazing thing to me about this entire debate is while Interchange fees may be 2%, embedded taxes run closer to 20%. Embedded tax and tax compliance costs make everything we buy more expensive and hurts American exports and competitiveness in a global market. So not only do we pay income tax, social security tax, payroll tax, medicare tax, estate tax, etc., we all pay again the embedded business tax of the entire supply chain. Why is the debate over this hidden tax scheme not the top headline of public focus?