Is more government control of swipe fees needed?

The fees that merchants pay every day when they accept a payment made with a debit or credit card have been in the news a lot lately, and now one federal lawmaker says it may be time for more oversight of these charges.

The one-year anniversary of new federal regulations that placed a cap on debit card interchange fees, paid by retailers and other service providers every time they accepted a purchase using such a card, passed recently, and now some believe a similar approach should be taken with the levies applied to credit transactions, according to a report from U.S. Representative Peter Welch, a Democrat from Vermont, writing for the political news site The Hill. This has become a concern in recent months thanks in large part to the proposed settlement between a number of merchant groups and the world's two largest payment processors, Visa and MasterCard.

Is there a problem with the system?
Welch got involved with the issue of how much businesses pay for processing credit and debit card transactions half a decade ago, when even small businesses in his home state began complaining about the high fees they paid to payment processors, the report said. The small number of largest companies in the business process as many as 80 percent of the total amount of card transactions every year and therefore set the rates businesses large and small pay for accepting them without merchants being able to negotiate in any way.

As a consequence, these businesses must either acquiesce to the fees, or choose not to accept credit and debit payments at all, the report said. In either case, even small businesses can lose out on tens of thousands of dollars per year, either because they do not accept card purchases or because they're paying that much to the payment processors.

The true cost of swipe fees
The aforementioned new federal rules prohibit payment processors from charging more than 21 cents per debit transaction, regardless of its size, but the same rules were not applied for credit purchases, the report said. Those fees still total between 2 to 3 percent or more of the total purchase price, on average, and can significantly eat into a business' profit margin as a result.

This is especially problematic because, if a fee of 3 percent were applied to even a $40 purchase, that would cost the merchant $1.20, but the average cost of handling the transaction for a payment processor is about 4 cents, the report said. American merchants are paying the highest transaction fees in the industrialized world, and those costs continue to rise because there is nothing being done to regulate the largest companies in the industry.

"Small businesses often don’t know what they are paying or why they are paying it," wrote Welch, who also serves as a member of both the House Oversight and Government Reform Committee, and the House Agriculture Committee. "The bank statement a local retailer receives at the end of the month has so many different rates and fees it may as well be in a different language. For example, Visa has over 70 swipe fee categories while MasterCard has over 240 different rates."

What can be done?
While there may be little done right now to help consumers and businesses reduce costs related to these fees, that may change in the future, the report said. Part of this is because there are a number of emerging technologies which may make it easier for companies to find more affordable payment processing options, such as mobile options, and in turn pass those savings on to the consumer in the form of lower prices.

In theory, federal lawmakers and regulators could work together and come up with a plan to make competition in the payment processing industry more feasible by mandating greater clarity from participants of all sizes, the report said. Already, there have been considerable reforms made in several other areas related to consumer finance, and these fees may have as large an impact on Americans' personal bottom lines as some other issues that were resolved in the last few years.

While the government may be able to put more protections into place related to consumers' finances, that doesn't mean you shouldn't do all in your power to make sure yours are as healthy as they possibly can be. One way you can do so is by ordering a copy of your credit report and checking it over carefully to determine whether there are any unfair markings having a negative impact on your credit score. If so, working with a credit repair law firm may help you to clear up these issues and get back on the right track.