When you use your credit card to pay for groceries, your focus is likely to be how much you are paying for the items in your cart. But each time you swipe your credit card, the business you are patronizing has to pay a fee to the credit card company, called an interchange fee.
The fee varies, but averages around 2% of the purchase price and can be higher for online transactions. The average American household pays
over $300 each year
in interchange fees -- the highest in the world.
Doug Kantor, an attorney representing the National Association of Convenience Stores, said that because the convenience store profit margins are 1 to 3 percent, the stores can't survive unless they pass the fees onto their customers. "Customers are paying these fees and are completely unaware because using a
appears to be free to the consumer," Kantor says. This is because interchange fees are typically passed on to the consumers in the form of higher prices on goods and services.
Over seven million merchants filed an anti-trust private class-action lawsuit in 2005 against Visa, MasterCard and member banks alleging price-fixing of interchange fees and complaining about restrictions that prevent merchants from providing discounts for other payment methods. A settlement was reached in July 2012 and parties are currently waiting for Final Approval from a federal court in Brooklyn.
What are the settlement terms?
As part of the settlement, Visa and MasterCard along with their network banks will pay $6 billion to merchants. A 10 basis point reduction in credit interchange rates will be given to all U.S. class merchants, which is worth an additional 1.2 billion. While some merchants currently offer a discount to cash customers, the settlement will now allow merchants to charge a checkout fee for credit purchases.