“The credit card companies not only take a piece of every retail transaction, they also take a bite out of sales taxes,” NRF Senior Vice President and General Counsel Mallory Duncan said. “When a card is used, the card companies assess their fee on the final register price. That means we have to pay them 2 percent of the amount we collect for the state. Members of the committee, the sales tax is not our money. It’s not the credit card companies’ money. It’s the people’s money. Californians are hurting, so why should businesses have to pay credit card companies a fee to collect money for the state?”
Duncan testified before the state Assembly Banking and Finance Committee during a hearing held today on credit card interchange, a fee averaging about 2 percent that Visa and MasterCard banks charge merchants each time one of their credit cards is swiped to pay for a purchase. “Swipe” fee collections totaled $48 billion in 2008, triple the $16 billion collected when NRF began tracking the fees in 2001.
Duncan explained how Visa and MasterCard rules effectively force merchants to pass the fees on to consumers by requiring them to be included in the advertised price of merchandise and making discounts for cash, checks or cheaper forms of plastic difficult. As a result, a shopping bag of goods that could be sold for $99 has to be priced at $101 on the assumption that the customer might pay by credit card, he said. Nationwide, the average household paid an estimated $427 in higher prices in 2008, up from $159 in 2001.
“That’s a remarkably anticompetitive rule,” Duncan said of restrictions on discounts for less-expensive forms of payment. “It’s like Pepsi and Coke telling stores they could be fined if they charged people less for other soft drinks. Its effect, of course, is to discourage the market from moving toward cheaper forms of payments.”
“Regardless of whether one uses cash, check or food stamps, we all end up paying the credit card company price,” Duncan said. “In effect, interchange acts as a privately imposed sales tax on U.S. commerce. Experience has shown that when you hide the true price of credit, it doesn’t matter if it’s a subprime loan or sneaky piece of plastic, the public gets rooked.”
“Gold,” “silver” and “platinum” cards with rewards programs cost merchants even more than the average 2 percent. Duncan said they “operate like a reverse Robin Hood,” charging “the poor more in order to deliver rewards to the wealthy.”
In addition to today’s examination of interchange by the California Legislature, bills pending in Congress would require the card industry to negotiate with merchants over interchange and give the Federal Trade Commission authority to prohibit interchange practices that violate consumer protection or anti-competition laws. A Government Accountability Office study commissioned by Congress last year found interchange fees have risen despite Visa and MasterCard claims to the contrary, that the fees drive up prices for consumers, and that prices could be lowered if the fees were lowered.
The National Retail Federation is the world's largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry's key trading partners of retail goods and services. NRF represents an industry with more than 1.6 million U.S. retail establishments, more than 24 million employees - about one in five American workers - and 2008 sales of $4.6 trillion. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations. www.nrf.com.
Contacts
National Retail Federation
J. Craig Shearman, 202-626-8134
shearmanc@nrf.com
