They’re not getting anything out of me, I thought. No interest, no late fees. In fact, they’re just giving me a one-month interest-free loan. Ha.
I stopped carrying much cash, especially as ATM fees rose and I wanted to keep banking with a credit union even though I can’t walk to a local branch. I set most of my bills to go to automatic payment by my credit card and racked up free train tickets left and right with my Amtrak Guest Rewards card.
I should have known better. Large financial institutions letting me use their products but get away with not generating profit for them? Not so likely.
I knew, vaguely, about “interchange” fees, the fees a merchant pays to the issuing bank every time you use a card. What I didn’t know, until I chanced recently on an article by Stacy Mitchell of the New Rules Project (also author of The Big Box Swindle), is that since the last time I paid any attention to them at a long-ago job, they’ve nearly doubled. And all those free miles/points/rewards? They are funded by even higher fees on those cards.
How this works is a lesson in perverse economic incentives: Visa, MasterCard, and AmEx are not competing for your and my business. They’re competing for the business of the banks: They want Chase, Citibank, etc. to issue their cards. And if the interchange fee goes to the banks . . . then the way to compete is to raise fees.
In 2008, 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. So it still matters that I’m not paying them interest—but not nearly as much as I would have liked to believe.
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.
This is going to sound familiar (universal health care anyone?), but nearly 20 other countries have decided that this is a clear market failure and have passed regulation to cap these fees, often at levels about a quarter of what U.S. businesses are paying. (Aren’t we business friendly here? Oh right, we’re not. We’re massive corporation friendly.)
There’s nothing like that in the works here, though I would think the public mood would be better now for it than it has been in a long time. The Credit Card Fair Fee Act would at least let merchants negotiate collectively (though that process would be dominated by large retailers who might not have the interests of small business in mind), but even that has only 16 cosponsors in the House and none in the Senate and has been sitting in their respective Judiciary committees since last June.
So for now, if small businesses are to stay in business, they pass on those fees by raising prices for everyone. With the sickening result, as Mitchell says, that “a low-income shopper paying with cash ends up subsidizing the free airline miles given to a high-income shopper using an American Express Delta Skymiles card.”
So much for getting one over on the man. So now comes the awkward weaning process off a plastic-only lifestyle. It’s going to be slow and unpleasant and inconsistent, I expect: I’ve gotten incredibly unused to having cash on hand and keeping track of it. Switching to having enough of it without suddenly drowning in ATM fees and being able to figure out where I spent it all (not to mention distinguishing between cash from the family account and my personal account) is really rather daunting.
At least it doesn’t have to be total. Anything I spend online or with a national company—my utility bills, cell phone minutes, gas for the car—can still go on the credit card. I don’t have to go back to remembering to write monthly checks for my bills (I’ll find other ways to support my post office). Verizon and CVS can pay as many fees as anyone wants to charge them as far as I’m concerned. I suppose in a fight I’d want T-mobile to win over Chase, but I’m not concerned about either of them.
And if I’m stuck without cash at a local business I care about, I guess at least I can whip out the credit union debit card instead of the high-fee big-bank rewards card.
Baby steps, I suppose. Maybe I’ll start a support group. We can meet at a local café and pay cash.