Erpenbach: On Interchange Fees and what it means to you---

State Senator
Jon Erpenbach
State Senator Jon Erpenbach Column

July 18, 2006
Hidden Credit Card Fees Hurt Businesses and Consumers

Most people are aware of some of the fees that credit card companies charge in addition to the purchases they make-late fees, balance
transfer fees, over-the-limit fees, all of these things can add to your bottom line and increase your credit card balance. What you may
not have been aware of is another hidden fee-the interchange fee. Credit card companies charge this fee on virtually every transaction.

The interchange fee is a percentage of each transaction that Visa and MasterCard banks collect from merchants every time a consumer
uses a credit or debit card to pay for a purchase. The fee varies with type of card, size of merchant, and other factors, but averages
close to two percent for credit card and signature debit transactions.
Inevitably, merchants are going to pass the cost of these fees along to consumers in the form of higher prices, driving up the cost of
goods and services for everyone, even if you don’t use a credit or debit card. Some retailers are forced to pay more in interchange fees
to Visa and MasterCard than they make in profit.
The bad news for consumers and for businesses is that Visa and MasterCard wrote the rules, so it makes it virtually impossible for
merchants to tell consumers how much interchange fees cost them, and the fees remain hidden. Last year alone, it is estimated that
consumers paid more than $26 billion in interchange fees last year. That figure is double what they paid in credit card late fees and
about six times what they paid in ATM fees. And consumers probably didn’t even know they were doing it.

Visa and MasterCard have control of about eighty percent of the credit card market. This creates an anti-consumer, anti-competitive
environment. Visa member banks collectively agree to charge the same interchange rates. MasterCard member banks do the same
thing. This kind of situation amounts to price-fixing, and something needs to be done to protect consumers, and the businesses they
patronize.

Just like ATM fees, consumers have a right to know what their credit cards are costing them. Transparency and competition are good
for consumers and merchants. Without them, Visa and MasterCard can fix these fees in secret and we all end up paying the credit
card companies more and more and more.
This week the United States Senate will hold a hearing on credit card interchange rates. I would encourage everyone to contact their
representatives in the federal government and encourage them to closely scrutinize these outrageous fees. When there is transparency,
the consumer wins.