Too Big a Piece of the Pie

An article at the New Rules Project by Stacy Mitchell talks about about credit card fees. We're not talking about the myriad nuisance fees like late fees and overdraft fees that you can avoid with diligence but the transaction fees that are skimmed by the credit card companies on every single credit card purchase:

Although the exact rate charged on any given transaction varies widely depending on many factors, including the size of the business and the type of card, the average interchange fee in the U.S. is now about 2% of the value of the sale — two to six times the regulated rates imposed on Visa and MasterCard in Australia and much of Europe.

....Interchange fees now comprise a substantial share of the income these companies make on credit cards. In 2004, card issuers took in $28 billion in interchange. By 2008, that figure had shot up to $48 billion. That's more than one-quarter of all credit card revenue and more than the total collected by banks in credit card late fees, over-the-limit fees, and ATM fees combined.

Business owners are helpless since they can hardly stop taking credit cards and they aren't allowed to directly pass along transaction fees to consumers. You can rest assured though that these fees wind up coming out of our pockets eventually. Merchants have absolutely no bargaining power at all as to turn away credit card and debit card users would be a disaster in today's world. To understand how bad we are getting screwed you should understand that in Europe, transaction fees have been cut to 0.3% by the EU government.

We can chip away at the credit card companies with various limits and caps on interest rates and all sorts of nickle and dime rules but until we force them to restrict their take of American business to a reasonable percentage then we are just pissing into the wind. If I am not mistaken adding a percent or so to the profits of American business might be a pretty stimulus in itself.

Credit and debit cards are supposed to facilitate business by providing a symbiotic way for consumers to interact with merchants. Somehow, in the U.S. at least, this has turned into a parasitic relationship with the credit card companies slowly bleeding the American economy by taking an unwarranted share of each transaction. I am not against Visa, MasterCard, Discover or American Express and I expect them to make a fair profit. Fair being the operative word. This is just another example where, on many fronts, the EU is ahead of the U.S. in making sure the playing field is somewhat level with respect to the relationships between business and consumers.

H/T Kevin at Mother Jones