Section 1075 of the Dodd-Frank Wall Street Reform and Consumer Protection Act addresses the fees that merchants pay every time we hand over a credit card to make a purchase.
Over the next nine months, the Federal Reserve will be required to establish “reasonable and proportional” standards for these fees – called “interchange fees.”
At present, these fees cost merchants an average of 1 to 2 percent of each debit card transaction and 2 percent of each credit card transaction. However, smaller merchants have been subjected to fees as high as 4%.
Part of this fee is in the form of a fixed charge every time a consumer swipes a card. Thus, retailers who accept cards for a small purchase may actually be losing money on that purchase, as the card fees eat up more than the profit on a low-markup item.
The National Retail Federation estimated that retailers in the U.S. paid $48 billion in such fees in 2008 – which was triple the amount paid in 2001. This is not surprising, considering the number of consumers who now use debit cards rather than taking the time to write a check for a purchase.
Of course retailers aren’t going to pay these fees without rolling them into the cost of the merchandise they sell. The NRF estimates that the average household pays about $427 per year in these “hidden” fees.
Retailers are prohibited from adding a surcharge at the till for use of a debit or credit card, so all consumers pay – whether they pay by cash, check or plastic.
They’ve also been prohibited from refusing to take cards for small purchases or from giving discounts to consumers who pay with cash. That is about to change.
Under the new rules, retailers still won’t be allowed to impose a surcharge, but they will be allowed to refuse cards for purchases under $10 and to offer discounts to consumers who use cash or checks.
But are the banks going to take this sitting down? Of course not.
Just as banks raised fees to credit card holders to make up for losses they suffered through the CARD Act, they’re now considering how they’ll make up for this loss.
One way will probably be the imposition of higher fees for the right to accept credit and debit cards. What else they’ll do to retain profits remains to be seen – they have a few months tofigure it out.
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