Credit Card Fee Relief on Its Way


Small businesses, and in turn consumers, could get some relief from credit card processing fees if a Senate proposal becomes law.

Currently, for every purchase a credit card user makes, a chunk of the price they pay goes to a credit card processor like Visa (Stock Quote: V) and MasterCard (Stock Quote: MA) in the form of an interchange fee charged to retailers for every transaction.  Much of that fee goes to into the credit card companies’ coffers but some of it goes toward credit card rewards program redemption.

In 2008 alone, credit card companies collected $50 billion in interchange fees, according to Sen. Dick Durbin (D – Ill.).

In stores, the fees levied by Visa and MasterCard, for example, factor into the prices consumers pay, but if Durbin has his way, those fees will soon be limited, and consumers could ultimately be protected from bigger price hikes over time.

Taking From Poor, Giving to Rich?

The mere existence of interchange fees has led to higher costs for lower-income families, according to John Conyers, Jr., Michigan Congressman and Chair of the House Judiciary Committee.

He argues that since higher-income individuals can spend more and redeem more credit card rewards points, while lower-income shoppers don’t always rack up enough points to be able to significantly benefit from them.

"This is the most important question – to what extent do the costs of interchange fees come out of consumers’ pockets, especially low-income individuals who cannot take advantage of credit card reward programs,” Conyers says on his Web site.

If limits on transaction fees charged to businesses are set, small businesses won’t have to worry about processing transactions that end up losing them money.

"If I sell a Boston newspaper, I make approximately 6 cents. If someone whips out plastic, I might as well hand them the paper for nothing, because it costs me 12 to 14 cents to sell them the paper," 7-Eleven shop owner Dennis Lane told

The fees credit card companies charge are precisely why some stores have minimums that patrons need to spend before they can use their cards, even though minimums are technically not allowed under merchant agreements, notes The New York Times.

Durbin’s proposal would require card companies to negotiate interchange fees with retailers, giving more power to businesses and consumers, as MainStreet previously reported.

Senators have already approved some measures regulating interchange fees applied to debit card purchases, but have yet to determine whether to limit interest rates charged by credit card issuers and other lenders, according to MarketWatch.

“These interchange fees have real life consequences on Main Street,” Durbin said on his Web site. “Small businesses and merchants deserve a credit and debit card system that works for them and their customers, not just the big banks and credit card companies.”

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