The Vermont State Senate approved a bill this week that would allow retailers in the state to set minimum purchases for consumers using credit and debit cards. Merchants would be free to set their own minimum, under the proposed legislation.
Businesses have pressed lawmakers for that authority because they say interchange, or "swipe" fees charged by card networks wipe out their profit margins on small purchases. Credit card networks charge retailers a fee every time a consumer uses plastic to make a purchase.
Perhaps nowhere is the classic confrontation between Wall Street and Main Street more pronounced than the conflict over interchange fees. Merchants hate them. Banks depend on them. The consumer, of course, usually ends up paying them.The Vermont bill was modified from its original version, which would have allowed businesses to refuse to accept certain types of cards. For example, cards with generous rewards programs for consumers sometimes charge the retailer a higher swipe fee.
That provision was removed in an effort to secure passage by the Vermont Senate and improve prospects in the House. Should the measure pass the House, it must be signed by the governor in order to become law.
While Vermont is considering the limit on purchases, Congress could pick up the issue on a national level, as part of financial reform. Retail merchant associations in Washington are lobbying to eliminate or reduce interchange fees and have begun urging their members to start bringing the issue up with consumers. Some of them are.
Speedway convenience stores have started informing customers of the costs associated with using plastic. The National Association of Convenience Stores says nearly two percent of every transaction goes from local stores to big banks. In 2008, the group says, swipe fees totaled $48 billion and were storeowners' second highest cost.
Cash discount
The convenience store operators say they want consumers to know that when they fill up their cars with gas, part of the price they are paying goes for swipe fees, if they are using a credit or debit card. So some stations in upstate New York have begun offering a discount for gas if motorists pay with cash.
Sometimes the discounts can be as much as five cents a gallon, knocking a dollar off a typical fill-up.
Credit card networks, naturally, have a different view of interchange fees.
"Interchange is a small fee paid by a merchant's bank, also known as the acquiring bank, to the cardholder's bank to compensate the issuing bank for a portion of the risks and costs it incurs," MasterCard says on its Web site.
"For years, merchants have pursued legislation and legal action aimed at lowering or eliminating their costs of accepting electronic payments -- claiming this is to protect their customers who would see lower prices as a result," Anthony Walker, CEO of NARFE Premier Federal Credit Union, wrote in an American Banker op-ed last fall. "But what it's really about is protecting their profits and shifting costs to the general consumer."
Walker and other bankers say merchants receive huge benefits from accepting credit and debit cards and that two cents on the dollar is a small price to pay to "outsource their credit risk to financial institutions who are left holding the bag if the customer doesn't pay their bill."
