Credit card

Pamplin Media Group – My take: Credit card ‘reading fees’ weigh on family finances

US senators from Oregon are expected to support the bipartisan Credit Card Competition Act of 2022.

The current economic climate is not optimal for the small business community that drives Oregon’s economy. As most Oregonians feel cash, inflation is raging at the fastest rate in 40 years. Supply chain issues limit what can be stocked on store shelves. And consumer demand is cooling as the odds of entering a recession increase day by day.

But an additional threat to small businesses that remains hidden from public view is the rising costs associated with using credit cards. Every time a consumer swipes, inserts or taps a credit card at checkout, the merchant must pay a fee. This “swipe fee” – which amounts to a percentage of the total bill – goes to the major banks and credit card companies responsible for handling the transaction.

I experienced the financial headache firsthand. Until recently, my wife and I had owned a convenience store in Southeast Portland for about 40 years. Even though the store only provided basic groceries, hot meals, snacks and beverages, we paid nearly $20,000 last year in credit card charges. Compared to other budget items in our modest operation, this was our second largest business expense.

And here comes the silly part. For some of our lower priced items – like fountain drinks, candies, newspapers and lottery tickets – the swipe fee amount actually exceeded the small profit margin. Translation: the store was losing money every time a consumer purchased one of these items with a credit card.

It is justified to charge a reasonable amount of money to handle credit card transactions. But sweeping fees are getting ridiculous and need to be kept under control. Since 2012, as technological innovations drove down transaction management costs, swipe fee levels nearly tripled with no signs of slowing down.

Currently, in total, businesses pay $140 billion a year to cover this “transaction tax” – a cost that is partially passed on to consumers. The average family is estimated to pay $900 more per year in higher prices due to sweeping fees.

Why are swipe fees rising out of control? Due to a lack of competition.

You see, unlike most other sectors of the US economy, the credit card industry is dominated by two key players that effectively form a duopoly: Visa and Mastercard. Because the tag team controls about 80% of the market, the competitive pressure that usually keeps prices in check everywhere else is severely removed. As a result, the sweeping fee must increase without a railing. And traders have no choice but to get in the thick of it and swallow the costs.

Enter the Credit Card Competition Act of 2022. This recently introduced federal legislation will reset the credit card market to benefit merchants and consumers by promoting transparency and competition. Specifically, the bill will require large banks that exceed $100 billion in assets to give merchants more options on how to process cards issued to their users. There are alternatives to Visa and Mastercard that offer the same service minus the road theft.

In practice, the bill will spur competition among credit card companies, which in turn will reduce swipe fee levels.

Oregon small businesses are struggling to stay afloat in today’s choppy economic waters. Passage of the bipartisan Credit Card Competition Act will provide much-needed financial relief to merchants and ease cost pressures. Oregon Sens. Ron Wyden and Jeff Merkley are expected to lend their support.

Larry Stewart is a resident of Gresham.

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