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Credit Card Fees at the Pump are a 'Hidden Tax' on Consumers

Rising oil prices a gusher for card companies

By Martin H. Bosworth
ConsumerAffairs.Com

June 29, 2008
Consumers are feeling pain at the pump from gas prices topping $4 a gallon but it's not just gas they're paying for. They're dishing out "invisible" extra fees for using a credit or debit card when they gas up.

Interchange fees, the payments credit card companies and banks charge retailers for processing transactions made with plastic, constitute "a $50 billion fee on consumers," said retailer Mitch Goldstone, owner of the 30 Minute Photos photo shop.

"It's a hidden tax that enables the credit card companies to directly exploit the energy crisis," Goldstone said.

The interchange fees are set by Visa and MasterCard, the two largest issuers of credit cards, and supported by partner banks. Though the fee percentages themselves are fixed, the actual fee rises as the price of goods or services rises, meaning the fee for a credit card transaction can wipe out any profits the retailer may make for the transaction itself.

The fee structure hits convenience stores that sell gas particularly hard, due to the low margins and high costs of running the business.

"In 2007, credit card fees cost convenience stores $7.6 billion, more than double the convenience store industry's profits of $3.4 billion," said the National Association of Convenience Stores (NACS). "It has been much worse in 2008 as credit card fees have topped 10 cents per gallon, while the markup on a gallon of gas has averaged only 11 cents for the year so far."

"After factoring in all operating expenses, retailers lose money on every gallon of gas they sell when a consumer uses a credit card," NACS said. The retail association began a campaign of providing "pumptopper" advertisements to stores and merchants detailing the fees and how much they cost consumers.

Retailers have traditionally been forced to raise prices on all their goods in order to cope with the increased costs borne by interchange fees, and many gas station owners have recently been rebelling by only accepting cash for gas transactions and banning credit cards.

Goldstone, a lead plaintiff in the ongoing lawsuits brought against the credit card companies over the interchange fees, is planning a rally against the fees in his home city of Irvine, California for July 3. "I want to link this to Independence Day," Goldstone said, adding that he has received support from a broad coalition, including members of the Irvine police department.

"Many of them have said 'Good for you,'" Goldstone said, noting that many public employees live far outside the city of Irvine itself and pay enormous gas costs just to commute to and from work.

Shell Game

Although both Visa and MasterCard have enjoyed record profits since making initial public offerings for their companies, increasing public pressure over the interchange fees has pushed them to make changes in order to placate criticism, and possibly forestall the possibility of an unfavorable decision in the lawsuits.

Visa announced on June 26 that it would cap interchange fees at 95 cents for transactions made with debit cards at the pump. The fee structure change would take place on July 18, and would precede a full-scale revamp of credit and debit transactions in October.

Opponents of the interchange fees, such as Senator Dick Durbin (D-IL), applauded the measure but said more needed to be done.

"The setting of non-negotiable rates by companies with overwhelming market power not only represents a failure of the market, it pinches the pocketbook of every American," Durbin said. "Congress needs to pass meaningful and comprehensive reform of interchange fees."

Durbin sponsored the Senate's version of legislation introduced earlier this year in the House of Representatives that would enable merchants to negotiate interchange fees with credit card companies and banks, referring to the Justice Department and the Federal Trade Commission (FTC) to settle the matter if an agreement could not be reached.

Others were less impressed with Visa's move. "Unfortunately, we may not know the impact for months because Visa has said this will only affect debit card transactions on gasoline in mid-July and won't affect credit card transactions until October," Goldstone said, "long after the end of the summer driving season, and the opportunity for Congressional action."

"When the tsunami hit Indonesia in 2005, Visa immediately stopped charging interchange fees on donations made to the Red Cross," Goldstone told ConsumerAffairs.com. "If they have the power to rework their payment system so quickly, I wonder why they haven't done it before now."

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