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New Swipe Fee Battle: More Consumer Pain?

NEW YORK (LowCards.com) -- Another major dispute on interchange fees could take place, and this one may have new, painful consequences for consumers. This time, the battle centers around the swipe fee that retailers pay on credit card transactions.

According to CNBC, there is an antitrust suit between 5 million retailers and Visa (V), MasterCard (MA) and 13 large banks, including Citi (C), Bank of America (BAC), Chase (JPM), Capital One (COF), U.S. Bancorp (USB) and Wells Fargo (WFC). Retailers claim that banks and the payment systems have unfairly worked together to increase the amount of the interchange fee retailers pay on any purchase made with a credit card.

Shoppers may see even lower swipe fees at the checkout, but banks will surely look elsewhere to make up for billions in lost revenue.

The amount each retailer pays as a swipe fee varies widely, but the industry average is approximately 2%. This antitrust suit could cut that figure by three-quarters, down to 0.5%. That would be one more devastating revenue blow to the banks as well as Visa and MasterCard, leading to billions of dollars in lost income.

When the Durbin amendment went into effect Oct. 1 it cut the interchange fee on debit card transactions from an average of 44 cents to no more than 21 cents (plus 0.05% of the transaction, with the possibility of an additional cent if banks comply with fraud prevention procedures). Banks tried to make up for this lost revenue by implementing a monthly debit card fee, which led to consumer outrage. Banks eventually gave it up.

If the retailers win this antitrust suit, it could have have a significant impact on consumers:

  • Banks will lose billions of dollars after already suffering significant cutbacks in revenue. Whenever banks lose revenue in one area, they try to make up for it in another, and that always comes at the expense of the consumer. An increase in existing fees, the introduction of others and an increase in the credit card interest rates are changes that could be pushed.
  • A significant decrease in credit card reward programs. The lucrative cash back and airline mile rewards will likely decline. Most banks eliminated debit card rewards when the Durbin amendment passed. The same could happen with credit card programs if retailers win this suit.
  • A likely decrease in attractive balance transfer offers. Currently, credit card issuers are offering 0% interest rates for extended periods to lure customers from their competitors. The Citi Platinum Select card offers 0% for 21 months; the Discover (DFS) More card offers 0% for 18 months; and the Slate from Chase card offers 0% for 12 months with no balance transfer fee. If retailers win this antitrust suit, look for credit card issuers to scale back these balance transfer offers.
  • On the positive side, there could be a decrease in prices at store level. Retailers claimed the passage of the Durbin amendment could lead to a decrease in prices, since they would no longer have to pay the high swipe fees on debit card transactions. It is difficult to see if this actually took place. Retailers may face more pressure from consumer groups to cut prices if the interchange fee is also slashed on credit card purchases, though.

-- Reported by Bill Hardekopf of LowCards.com.

Bill Hardekopf is chief executive of LowCards.com, which compares and rates more than 1,000 credit cards. He is the co-author of "The Credit Card Guidebook."

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