High Credit Card Interchange Fees Cripple C-Stores

High gas prices and high credit card interchange fees are cooking up a witch’s brew of problems for small businesses, particularly c-stores and other petroleum retailers.

That’s the meat of the message from Tom Robinson, NACS vice chairman of government relations, who testified before the U.S. House Judiciary Committee’s Antitrust Task Force this week.

"If you are concerned about prices at the pump you need to be concerned about [credit card] interchange fees," said Robinson, president of San Jose, California-based Robinson Oil Corporation.

Testifying on behalf of NACS, Robinson said high credit card interchange fees are devastating the country’s small businesses, which dominate the convenience and petroleum retailing industry.

NACS reported that Visa took a step toward retailers by telling the Antitrust Task Force that it’s willing to sit down with retailers and negotiate interchange fees, while both Visa and MasterCard announced that their complete operating rules would soon be publicly available.

Joshua Floum, general counsel for Visa Inc., volunteered to meet with Robinson after the hearing to begin negotiations on interchange rates, NACS reported, adding that similar offers in the past have been disingenuous, though the offer was still made.

Credit card interchange fees are a percentage of each transaction that Visa and MasterCard and member banks collect from retailers every time a credit or debit card is used. In the U.S., interchange fees average 1.75%, or about three times the rate in Europe and four times the rate in Australia. With the average fueling transaction today, consumers paying by credit card incur 6 to 8 cents per gallon in interchange fees.

"The impact on my industry is incredible," said Robinson, adding that convenience stores paid $7.6 billion in credit card fees in 2007, a figure more than double industry profits of $3.4 billion. "Every time you buy gasoline I ask you to remember this – the station you are buying it from is paying more than twice as much money in fees than it is making – and every time gas prices go up the card fees go right up with them. These fees have simply taken over our industry."

Robinson said credit card interchange fees are his top operating expense at six of the 34 Rotten Robbie convenience stores. The fees cumulatively cost his business and his customers $4 million in 2007. The fees are his only major expense not resultant of competitive negotiation.

"It is clear that the price for the cashless society is way too high if you let the credit card industry set the rate," Robinson said.

Robinson urged Congress to swiftly enact H.R. 5546, the Credit Card Fair Fee Act, which would provide an opportunity for merchants to negotiate reasonable terms with the credit card companies and their member banks.

"Right now there is no market for interchange fees,” Robinson said. “The fees are fixed by the banks, hidden from the public and forced on merchants in a take-it-or-leave-it offer. The Credit Card Fair Fee Act will create a market for interchange fees for the first time by allowing merchants and the card associations to negotiate on equal footing.”

Currently, banks issuing credit cards are supposed to compete with each other, but they charge the same "default" interchange fees, giving retailers an ultimatum: either agree to the terms in full or refuse to accept credit cards. The latter choice isn’t a viable option given the combined market power Visa and MasterCard wield with banks.


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