WASHINGTON, DC -- 11/24/09 --
The American Consumer Institute (ACI) today
released a ConsumerGram detailing the negative effects that high credit
card fees (referred to as interchange fees) have on families across the
country. On average, each household will pay an estimated $337 this year
in interchange fees -- a hidden tax on credit card purchases. In turn, the
credit card companies profit from this and spend a considerable portion of
the revenue generated from this tax for their own benefit.
Interchange fees far exceed normal bank processing costs, which are around
13 percent. Experts estimate that a substantial share of the fee is used
for marketing efforts. According to the Food Marketing Institute (FMI),
almost half goes to reward programs enjoyed mainly by high income users or
to marketing efforts to new users, including those most at risk of
defaulting on credit card debt. A large part of the remaining third is
pure profit.
ACI President Steve Pociask issued the following statement regarding the
study:
"Holiday season is right around the corner. As many American families take
to the shopping malls this time of year, more and more realize they need to
cut back on their spending in the midst of tough economic times. However,
they could have more money in their pockets if it weren't for hidden
interchange fees. Credit card companies and banks have been able to turn a
huge profit at the expense of hard-working families. So instead of helping
the situation, the credit card industry is adding to their financial stress
by imposing hidden taxes. This has gone on for far too long. Policymakers
need to investigate these hidden fees and their effects on
hard-working consumers."
Background
In 2008, interchange fees were around $337 per household, but are likely to
be higher this year. According to a Gallup poll, the average family is
projected to spend about $740 during the coming holiday season.
The largest component of the fees banks and card companies collect is made
up of interchange fees. When a consumer makes a purchase using a credit
card, the payment is processed through the retailer's bank and the bank
that issued the credit card. The issuing bank charges the retailer's bank
an interchange fee to process the transaction. These interchange fees are
passed on to the retailer and ultimately every consumer, including those
who pay with cash or check.
Facts
-- Americans pay the highest interchange fees of all industrial nations.
-- Convenience stores and gasoline retailers annually pay credit card
companies more than twice as much as they earn in profit. Many of these
are family businesses and the cost converts directly to a burden on them as
consumers. The burden has worsened in the past four years. Convenience
stores -- a popular retail outlet for working class and lower income
families -- saw their interchange fees triple from 2004-2008.
-- The Federal Reserve Bank of Minneapolis reported that the average
convenience store has paid interchange fees roughly equivalent to its
pretax income, while the share of a grocery customer's dollar going to card
companies and banks is almost double what goes to the grocer's bottom line.
-- According to FMI, poor households are hard hit by these fees and those
who pay by cash pay higher prices to reflect "swipe" fees incurred by
higher income card holders who reap rewards (travel, merchandise, rebates,
etc.) from their card use.
For a copy of the ConsumerGram or more information about the Institute,
visit www.theamericanconsumer.org.
Image Available: http://www2.marketwire.com/mw/frame_mw?attachid=1122885
