In earlier posts I have written about the kindness in paying cash at small businesses. While most of us don’t know it, swiping our card at a store costs that store money. And while most of the mega -huge, big box stores can manage the expense, the small businesses cannot. This last week, in a local newspaper, Metroland, writer Miriam Axel-Lute discussed the truth behind all those credit card fees, and it’s pretty alarming. You can find her article “Pay Cash” (in Metroland, February 18-24, 2010, p. 4) here. But because this link may only be available this week (it’s a weekly newspaper), let me paraphrase her main points. (All quotes attributed to Miriam Axel-Lute.)
To be competitive, the major credit card companies like Visa and MasterCard charge “interchange fees”, which is what “…a merchant pays to the issuing bank every time you use a card.” The more Visa or MasterCard charge the businesses, the more money the banks who use their company (like CitiBank, Chase, and so on) get. These fees “pay” for all the “freebies” they offer: flyer miles, gizmos/gadgets, and points (when actually, you are paying for the “free” things whether you get any rewards with your card or not). So logically, to continue to appear attractive to banks these credit giants raise and raise again their fees–just a little more fat to sweeten the deal when your bank chooses their logo.
“In 2008,” Axel-Lute writes, “the banks collected $48 billion in these fees: That’s more than the total they collected in credit card late fees, over-the-limit fees, and ATM fees combined, and a quarter of the total credit card revenue stream…. Soaring interchange fees screw over small business: They lose tons of sales if they don’t take credit cards. But they are limited by law from passing on the fees to customers and by their contracts with the credit card companies from refusing the higher-fee rewards cards. They are also, so far, limited by anti-trust law from coming together to negotiate for lower fees.”
And even though 20 countries have placed limits on the amounts these fees can be, the US has yet to hop on board. For all the talk in Congress and state governments about protecting Main Street (ack! Tired of that phrase!) and supporting small businesses, nothing is being accomplished. The Credit Card Fair Fee Act (which according to Axel-Lute would allow businesses to collectively negotiate these fees with the credit companies) is sitting in judiciary committees in the house and senate with only 16 sponsors in the house for 9 months now. And since the big retailers would be part of negotiations, chances are the small businesses wouldn’t have much of a say in the bartering anyhow.
So what can we do? Well, the US (unfortunately to many) is a consumer-driven political system. Just look at how the “green” and “all-natural” movement went from something only granola-eating hippies were doing (I’m citing the stereotype), to something that has become a buzzword for every marketing campaign. Why not start to resist the points and rewards by not using our cards: pay cash. Start with the small businesses in your home town, and then move our way up to the bigger fish. Tell your friends about this part of our financial system–the part that the credit card companies don’t want us to know about. We can make a difference–by shopping locally, supporting small businesses, and paying cash when we do so!!