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Credit card debt hits record levels<\/p>\n
Americans are carrying a record amount of credit card debt, and interest rates are almost near record highs.<\/p>\n
Fox – Seattle<\/p>\n
Visa and Mastercard are offering to lower the fees they charge merchants to accept their credit cards to settle 20 years of litigation, but some merchant groups say it’s all “smoke and mirrors” and nothing in the plan will save anyone money.<\/p>\n
Under the $200 billion proposal,\u00a0Visa and Mastercard would lower credit-card interchange fees charged to merchants to process credit cards. The fees, usually between 2% and 2.5%, would drop by 0.1 percentage point, on average, over five years while standard credit card fees would drop to 1.25% for eight years. Merchants would gain surcharging flexibility and those that accept one of a network\u2019s credit cards would no longer have to accept all of them. A court still must approve the settlement.<\/p>\n
Visa and Mastercard said the deal would lower costs for merchants and consumers, but retail trade groups scoffed, saying consumers and merchants would end up paying more<\/a>.<\/p>\n \u201cNo one should be fooled by the credit card industry\u2019s smoke and mirrors,\u201d said Lyle Beckwith, senior vice president of government relations at trade group National Association of Convenience Stores. \u201cThis proposed settlement endorses business as usual, including by letting Visa and Mastercard increase their own fees<\/a> without any restraints.\u201d<\/p>\n What are interchange fees?<\/p>\n Whenever you use your credit card to make a purchase, the store must pay a behind-the-scenes\u00a0interchange fee<\/a> (also known as credit card fee or swipe fee<\/a>) to process that payment. Most of\u00a0that fee\u00a0goes to the bank issuing the card, but companies like Visa and Mastercard also receive a smaller fee\u00a0for processing the payment through their networks.\u00a0 \u00a0<\/p>\n Fees are charged as a percentage of\u00a0the total sales amount in each transaction, but the percentage charged to each merchant, whether at a physical store or online, varies.\u00a0Factors that\u00a0determine what percentage the merchant is charged include: type of merchant\u00a0(department store, convenience store, gas station);\u00a0type of payment technology used by the merchant; whether the purchase is online or in person; and the type of card.\u00a0 \u00a0<\/p>\n Total credit and debit card swipe fees<\/a> hit a record $187.2 billion last year, according to the trade group the Merchant Payments Coalition.<\/p>\n What would this deal mean for consumers?<\/p>\n The deal would save nothing<\/a> for consumers, said trade groups like National Retail Federation, Merchant Payments Coalition, National Association of Convenience Stores and Retail Industry Leaders Association.<\/p>\n \u201cThe plan to limit interchange fees by only a small fraction does not offset the increases that have occurred over the past several years \u2013 let alone the last two decades,\u201d said Austen Jensen, RILA\u2019s senior vice president of public affairs.<\/p>\n \u201cThe miniscule reduction proposed in the settlement on bank fees could still allow Visa and Mastercard to be able to raise their own fees without any limits,\u201d said Jennifer Hatcher, Food Industry Association chief public policy officer. \u201cAll of the supposed merchant and consumer savings could easily be canceled<\/a> by Visa and Mastercard increasing their fees.\u201d<\/p>\n Theoretically, consumers could also face confusion and chaos at checkouts. The deal would allow merchants to decide whether to accept credit cards in three distinct categories \u2013 commercial, premium consumer and standard consumer. If merchants choose only to accept a certain class of Visa card such as the standard, non-premium that have lower fees, customers with a rewards Visa card would be turned away.<\/p>\n Why has the dispute lasted 20 years?<\/p>\n Litigation began in 2005 when merchants sued Visa and Mastercard over alleged antitrust violations. They accused the two largest credit card processing firms, which set interchange rates, of being a duopoly.<\/p>\n Merchant groups want Congress to pass the Credit Card Competition Act, which would require the largest banks to offer at least two credit card network processing options on their cards, which they said would lower fees for merchants and, ultimately, consumers. But Congress hasn\u2019t reintroduced the legislation this year.<\/p>\n Meanwhile, Visa and Mastercard have been trying to hammer out a deal with merchants in the lawsuit. The latest proposal is its third in two decades. The last two were:<\/p>\n Is the third time a charm?<\/p>\n The settlement still needs court approval.<\/p>\n \u201cIt could be four months or so before we find out\u201d whether the court accepts the settlement, said Richard Hunt, executive chairman of the Electronics Payments Coalition, whose members include Visa, Mastercard and large issuers such as Bank of America, Capital One, Chase and Citibank that support the settlement.<\/p>\n But he likes the chances. \u201cNot everyone\u2019s happy so it\u2019s probably a great deal,\u201d he said. \u201cIt\u2019s very compelling,\u201d noting merchants would save an estimated $200 billion over the term of this agreement.<\/p>\n \u201cThe last number a year ago was $30 billion\u201d in savings, he said.<\/p>\n\n