A time of reckoning may be at hand for the money lenders.
Bankers and credit card companies, who reaped $48 billion in credit card interchange fees last year, are under the eye of regulatory agencies, Congress and the public after years of protests by retailers, who claim that exorbitant rates impact profits and add to the cost of shoppers' market baskets.
In its 2008 10-K statement, Weis Markets voiced “extreme concern” over rising interchange fees, illustrating the frustration food retailers have with these uncontrollable costs. Weis noted double-digit increases of 12.1% to $14.3 million in 2008 and 12.3% to $12.8 million in 2007. The company referenced a study that showed only 13% of the interchange fees represent the actual cost of processing the transactions.
The food industry and others have fought hard, including filing pending class-action lawsuits, to bring some rationalization to rising interchange fees. Reports surfaced last week that more increases are on the way, especially pertaining to rewards cards.
As unfair as it may seem, some of the nation's 12.6 million unemployed are even getting socked with interchange fees through state-issued, co-branded, prepaid debit cards used to redeem unemployment benefits, according to news reports. Senate Banking Committee Chairman Christopher Dodd, D-Conn., said such fees are “nickel-and-diming Americans.” This comes at a time when few consumers have nickels and dimes to throw away. Too many are deep in debt.
Merchants have called the credit card associations cartels and accused them and the banks of price fixing. Consumers who don't use credit cards also are burdened with the fees, because retailers pass them on as the cost of doing business. Attempts by retailers to get around this by offering non-credit card customers discounts have been curtailed.
Now experts and retail authorities are comparing the credit card system to that of the subprime mortgage fiasco, warning that the proliferation of credit card lending, fostered by interchange revenues, represents another wave in the financial crisis.
The time appears ripe for action.
FoodInstitute's Jennifer Hatcher, group vice president, government relations, expects as early as this week the reintroduction of a bill sponsored by Rep. Peter Welch, D-Vt., aimed at eliminating interchange fee abuses. Hatcher also is looking forward to the reintroduction of the Credit Card Fair Fee Act of 2008, which was passed by the House Judiciary Committee late last year but failed to move to the House floor. This bill would allow merchants to negotiate transaction fees with credit card networks. FMI supports both proposals. “We think this is an important part of the entire re-regulation and regulatory review of financial services,” said Hatcher.
While the time for reform is at hand, the fact remains that retail businesses — for good or bad — depend on consumer credit. While reform is necessary, the financial markets are extremely vulnerable. It's important that reform doesn't kill the golden goose that makes it possible for some Americans to put food on the table during hard times.