always figured I was putting one over on the credit card companies.
I had it engrained in my head very early on (thanks Mom and
Dad!) that I should never ever carry a balance on my credit
card, and despite some shaky financial times, Iíve stuck to
Theyíre not getting anything out of me, I thought. No interest,
no late fees. In fact, theyíre 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 canít 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
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 ďinterchangeĒ fees, the fees a merchant
pays to the issuing bank every time you use a card. What I
didnít 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, theyíve 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. Theyíre 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: Thatís
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 Iím not paying them interestóbut 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 donít 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
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. (Arenít we business friendly here? Oh right, weíre
not. Weíre massive corporation friendly.)
Thereís 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
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 ďa low-income shopper
paying with cash ends up subsidizing the free airline miles
given to a high-income shopper using an American Express Delta
So much for getting one over on the man. So now comes the
awkward weaning process off a plastic-only lifestyle. Itís
going to be slow and unpleasant and inconsistent, I expect:
Iíve 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
At least it doesnít have to be total. Anything I spend online
or with a national companyómy utility bills, cell phone minutes,
gas for the carócan still go on the credit card. I donít have
to go back to remembering to write monthly checks for my bills
(Iíll 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 Iím concerned. I suppose in a fight Iíd want T-mobile
to win over Chase, but Iím not concerned about either of them.
And if Iím 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 Iíll start a support group. We
can meet at a local cafť and pay cash.