Credit card swipe fees under attack


Paying $2,000 a month on “swipe fees” to credit card companies, House of Hanson owner Laurel Bauer said it can be expensive for the Dinkytown grocery store to accept payments via credit and debit cards.

“At this point it’s about 22 to 25 cents per swipe plus a percentage of the sale,” Bauer said. “But if I didn’t take credit cards, half my business would walk down the street to somebody else who would.”

To help protect merchants from excessive swipe fees, the U.S. Department of Justice filed a civil antitrust lawsuit Oct. 4 against American Express, MasterCard and Visa.

The department has reached a proposed settlement with MasterCard and Visa that, upon court approval, will allow merchants to tell customers their preferred payment methods and offer discounts on cards with low swipe fees.

American Express, which charges the highest swipe fees, has not agreed to the settlement.

“With today’s lawsuit we are sending a clear message: We will not tolerate anticompetitive practices,” Attorney General Eric Holder said in a statement. “We want to put more money in consumers’ pockets, and by eliminating credit card companies’ anticompetitive rules, we will accomplish that.”

Every year credit card companies collect approximately $35 billion from U.S. merchants in swipe fees, according to the Justice Department.

To make up for their losses, businesses will often increase the price of their goods, passing the fee down to the customer, said Craig Shearman, a senior director for the National Retail Federation.

“Most consumers haven’t even been aware of these fees and don’t realize how much extra they’re paying in order to use a credit card,” Shearman said.

The average family could be spending an extra $427 a year on hidden fees, according to the NRF.

Currently, the House of Hanson combats the interchange fees by asking customers to make a minimum purchase of $5 when using a credit card, Bauer said.

“I’ve had people come up with a pack of gum [and] I barely make 22 cents on a pack of gum,” Bauer said. “Just to swipe the card, I’m either negative money, or make nothing on that sale.”

Previously, purchase minimums violated contracts with credit card companies because they inhibited card use.

But since the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in July, merchants can now require a minimum purchase amount of up to $10 to ensure reasonable processing fees.

The act also allowed merchants to offer discounts for cash payments, and the Justice Department’s lawsuit against the credit card companies is an extension of that policy.

The settlement with MasterCard and Visa will most likely lead to greater transparency in pricing because retailers will be able to ask customers for more when using specific cards, Shearman said.

If customers end up learning their cards have higher swipe fees than others, the demand for cards with cheaper fees will probably increase, Shearman said.

Bauer said she understands the companies’ motivation for the fees.

“They feel they’re doing a service. They’re handling money, and they figure they got bills to pay too,” Bauer said. “[But I] just can’t run a business breaking even on a sale.”