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Will Congress Cap Credit Card Swipe Fees?

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While many consumers may not know it, there is a price merchants pay for accepting all debit and credit card purchases, and these have been serious points of contention in the last few years.

Just one year ago, the federal government put a limit of 21 cents per purchase for every debit card transaction handled by a payment processing company on behalf of any business large or small. Now, it may be time for lawmakers to take a similar approach when it comes to the fees charged by these companies for businesses accepting credit card purchases, according to a report from U.S. Representative Peter Welch, a Democrat from Vermont, posted on the political news site The Hill.

The small handful of the largest companies in the payment processing handle about 80 percent of all purchases made on both debit and credit cards nationwide, and have little oversight related to the fees they charge on the latter accounts, the report said. As a consequence, these fees, which typically average anywhere from 2 to 3 percent of a purchase’s total price, can cost even small businesses tens of thousands of dollars annually. And despite the size of these fees, the Federal Reserve recently found that it only costs payment processors about 4 cents to handle a card purchase. Further, the size of these fees is only growing, and merchants have little recourse to cut their costs in this area.

“Small businesses often don’t know what they are paying or why they are paying it,” Welch wrote. “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.”

Fortunately, new technologies such as mobile payment processing are now offering businesses of all sizes alternatives to the traditional credit acceptance ecosystem, the report said. This may help them to reduce costs and, in turn, pass the savings they enjoy along to consumers in the form of lower prices.

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Already, laws allow companies to essentially give consumers who are paying with cash discounts not available to those paying with cards, as a means of incentivizing their doing so and helping merchants to avoid swipe fees.

Image: Håkan Dahlström, via Flickr

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