"This report confirms what we've always knownthat swipe fees drive up costs for all consumers and that struggling moderate and low-income consumers who often are unable to take advantage of card perks or who don't have a credit card at all end up subsidizing the wealthier individuals who do," NRF senior [image-nocss] vice president and general counsel Mallory Duncan said. "This also shows the importance of the new law allowing retailers to give a discount to customers who don't use credit cards. But the report recognizes that the real solution won't come until there is genuine consumer transparency and competition that lowers credit cards fees to a point that reflects banks' actual costs for processing these transactions."
A report issued Monday by the Federal Reserve Bank of Boston found that the typical consumer "is largely unaware of the full ramifications of paying for goods and services by credit card."
Since credit-card industry practices bar retailers from imposing a surcharge for credit-card use, merchants are forced to include swipe fees in the prices charged to all customers, the study said. That results in "credit-card-paying customers being subsidized by consumers who do not pay with credit cards." Since wealthier consumers are more likely to hold credit cards, the fees further result in a "regressive transfer of income" from lower-income to higher-income consumers.
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While swipe fees drive up prices for all consumers, an estimated $151 of the extra amount paid by the average cash-using household goes to subsidize card-using households, the report said.
The report said the subsidy is an issue lawmakers "may wish to address" and outlined a number of policy options that could be considered, including allowing merchants to charge different prices for cash and credit, disclosure of "full information" about fees, redistribution of fees to low-income individuals through tax policy, increased competition from alternative payment systems if it cannot be attained within the credit-card market, and government regulation of both credit-card fees and rewards.
The report was issued less than a week after President Barack Obama signed financial services reform legislation that included provisions to address credit- and debit-card fees. Federal law has long allowed retailers to give a discount for cash or checks, but card industry rules and practices have made discounts difficult in actual practice. The new law goes further by barring the card industry from interfering with merchants who offer a discount or other benefit to customers who pay by cash, check or debit card rather than credit cards. The measure also gives the Federal Reserve nine months to set regulations resulting in "reasonable and proportional" swipe fees for debit cards, and allows merchants to set minimum purchase amounts of up to $10 for credit cards.
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