How credit card fee reform impacts consumers

Visa credit cards are arranged on a desk.

Jeff Horwich: This morning we've been looking at the impact of the largest antitrust class action settlement in U.S. history. The major credit card companies Visa and Mastercard -- as well as the big banks -- have agreed to pay more than $6 billion to retailers.

The U.S. Justice Department said the credit card companies conspired to fix the prices on credit card swipe fees. Those are fees that retailers have to pay every time someone uses a credit card. Along with breaking up that collusion, the settlement changes the rules in the store. For example, it will let retailers charge you more if you use a credit card for your purchase.

Greg McBride with BankRate.com is here to talk about the consumer implications. Hello.

Greg McBride: Good morning, Jeff.

Horwich: How are consumers likely to experience this change when they are shopping?

McBride: Well, it's probably not going to be a positive change for consumers. I mean, as these things always go, the consumer ends up getting stuck with the bill. Back in October, reduced interchange fees for debit card fees went into effect, and I don't know about you -- but I haven't seen any lower prices since then. So the same sort of thing, or putting restrictions on fees on credit cards, is probably not going to result in lower costs to consumers. If anything, you may see merchants continue to hold the line on costs -- perhaps more than giving discounts for cash purchases. And very likely you are going to see card issuers try to recoup some of the revenue that they lost, or recoup some of what they had to pay out of pocket on these interchange fees, through annual fees on credit cards or other types of ancillary charges. 

Horwich: Credit card companies have said they support these reward programs in part by charging these fees. I'm one who, I'll admit it, I love my credit card rewards program, am I going to lose that?

McBride: Well it does really undermine the credit card rewards programs. The rewards programs are a revenue share arrangement between the card issuer and the card holder. And let's look at what happened on debit cards when interchange fees got cut in half, we saw a 30 percent year-over-year decline in the availability of debit card rewards programs. So any sort of similar movement on the credit card front is going to undermine credit card rewards programs and potentially be detrimental to consumers. 

Horwich: Greg, when I shop smaller brick-and-mortar stores, they tell me that these swipe fees, which they hate, are one of those things that makes it so hard to compete with, say, Amazon.com. Are things going to get better for them in that respect?

McBride: Well that's the type of merchant, where, yes, their per ticket cost are high because they don't have the volume of an Amazon, a Wal-mart. But the balancing act that they are going to have is if all of the sudden they decide that they are going to charge more for consumers that use credit cards, or they set a minimum purchase on credit cards -- there's a balancing act there because they just need to be careful how many sales they push out the door.

Horwich: Very helpful, Greg McBride at Bankrate.com, thank you.

McBride: Thank you.

 

 

 

About the author

Jeff Horwich is the interim host of Marketplace Morning Report and a sometime-Marketplace reporter.

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