When you make a credit card purchase for $100, it costs the merchant about $1.00 in processing fees. It’s unclear why card issuers think they deserve a 2% cut.
Most of the attention in recent months has been focused on fees for processing debit cards. However, in early July, the Federal Reserve limitedd the base charge that can be imposed to 21 cents per transaction, on average — well below the current average of 44 cents.
The processing fees in question are known as interchange fees, and they’re a major source of revenue for card companies like VISA and MasterCard. Merchants and consumer groups alike have long challenged the fees for being too high and out of proportion with the actual cost of processing transactions.
Banks contend that they need such fees to maintain the integrity of their computer networks as well as to fund anti-fraud efforts.
Source: David Lazarus / LA Times
Are high credit card fees pricing plastic out of the market?
Some businesses are putting the kibosh on credit cards to avoid paying processing fees that run about 2% of the transaction amount. In other words, every time you buy something for $100 with plastic, it costs the merchant nearly $2 in processing fees.
Multiply that by hundreds or even thousands of daily transactions, and that can add up to some serious coin. Typically, those costs are passed along to customers in the form of higher prices.
The financial services giant John Hancock is the latest to slam the door on credit cards, telling customers it will no longer accept payments via plastic for long-term-care insurance premiums.
“The decision to discontinue this option is due to the high fees associated with this billing method,” the company said in a recent letter to ratepayers. Customers were advised to make payments either by check or by automatic deductions from their checking accounts.
Susan Shershow, 68, of West Los Angeles said that although she’s been happy making credit card payments for her John Hancock premiums, it won’t be a problem to switch to paying by check.
“I worry more about all the people who need to charge it and then pay it out over time,” she said. “I know a lot of people like that, and it’s going to be much harder for them.”
The Fed determined that a 21-cent fee (plus a little extra for fraud protection) is a “reasonable and proportional” price for moving money in the digital age. The new limit takes effect Oct. 21.
Credit card fees, meanwhile, have largely gotten a pass from federal authorities, although financial reforms signed into law in 2009 required that the Government Accountability Office look into how these fees affect consumers.