When you elect to use a credit card to make a purchase, any kind of purchase, big or small, someone obviously has to pay for that convenience.
And even when you use cash, because so many other customers opt to use their credit cards, there’s no escaping the fact that someone still has to make up that difference.
So you might be thinking oh, this is just the tiny merchant fee that the store pays per transaction that doesn’t really affect me, but there’s actually another fee in addition to the standard transaction fee.
This hidden cost is known as an “interchange fee”, and these fees drive up the price of merchandise and other goods that we buy on a regular basis, and much like every other fee, get passed on to the consumer.
It works like this: When you make a $100 purchase, the merchant will actually only receive $97.50, with the remainder being split between Visa/MasterCard and the card issuing bank, such as Citi Bank of America, or Chase, to name just a few.
Visa/MasterCard will collect the transaction fee, usually around 50 cents or less in the above example, and the card issuer will collect the remaining $2.00.
The best part is that these fees are hidden and prices are set behind closed doors, and because they are so lucrative, they’re the motivating factor driving banks to issue more credit cards to consumers.
According to UnfairCreditCardFees.com, American consumers paid more than $36 billion in interchange fees during 2006, a 117 percent increase from 2001.
On a positive note, the House Judiciary Committee Chairman John Conyers (D-MI) and Rep. Chris Cannon (R-UT) yesterday introduced the “Credit Card Fair Fee Act”, legislation that finally addresses this mystery fee.
The hope is that these fixed interchange prices controlled by Visa and MasterCard will bet set by the market and not be monopolized by two financial giants.
Interestingly, these interchange fees often fund junk mail campaigns that send millions of credit card offers to our doorsteps 365 days a year. Go figure…
Read more: How credit card issuers make money.