Credit Card Changes in Store?

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With the passage of last year's CARD act, consumers won major concessions from credit card companies. Now it may be your local merchant's turn.

If some Senators have their way, your local merchant may soon pay less to process your credit and debit card transactions. If that happens, billions of dollars will be transferred from Wall Street banks to Main Street merchants. It’s even possible some of those savings could trickle down to consumers.

Sen. Dick Durbin, D-Ill., recently added a couple of amendments to the financial reform bill now winding its way through the senate. One of them will allow the federal reserve to set interchange fees, also known as “swipe fees.” These fees, averaging 2% in the United States, amount to nearly $40 billion dollars annually and go largely to Visa, MasterCard, and the banks that issue cards.

US retailers have been battling these fees for years. They’re a huge expense: Home Depot has said that they pay more in interchange fees than they do for employee health care.  Merchants on other continents pay a lot less: Interchange fees are as low as low as .2% for debit cards in Europe and are capped at .5% in Australia.  And US merchants are particularly incensed that swipe fees have been increasing for years even as modern technology steadily reduces the cost of these electronic transactions.

In addition to allowing the Federal Reserve to set interchange rates, Durbin also proposed amendments that will allow merchants to offer discounts for using debit cards, cash or a particular card, as well as allowing them to set minimums and maximum purchase limits for credit and debit card transactions. None of that is allowed by card issuers today.

As you might imagine, these changes are opposed by Visa, MasterCard, and all manner of banking trade groups, including those representing credit-unions and community banks. Smaller banks and credit unions are concerned that putting price controls on credit and debit cards issued by the biggest banks will make their cards relatively more expensive, thus making merchants less likely to accept them.

If these amendments ultimately become law, merchants will definitely make more money. Whether they’ll share that money with their customers remains unknown.  But one nearly certain casualty of these changes would be rewards programs for both debit and credit cards, since rewards cards cost merchants more in interchange fees.

In other credit card news, according to Synovate Mail Monitor, during the first three months of 2010, about 480 million card offers were mailed to consumers. That’s up 29% from the quarter before, which might indicate a recovering economy, but definitely indicates that some bankers are looking for new business.

In case you’re wondering, 480 million solicitations for credit cards doesn’t begin to approach a quarterly record: that distinction goes to the summer of 2005 when banks sent 1.6 billion solicitations: more than six times the number they sent in the first quarter of this year.

If you don’t want to receive credit card offers in the mail it’s easy enough to opt out. You can call 888-5-OPTOUT (888-567-8688) or visit

Stacy Johnson

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