Unregulated credit card fees have meant boon profits for the major credit card issuers and banks – and high expenses charged to small businesses. Since 2003, the swipe fees received by credit card companies have nearly doubled. Swipe fees for credit and debit cards translate into billions of dollars annually for the big credit card companies. The Neilson Report estimated that small businesses and merchants paid about $62 billion in swipe fees to credit card companies in 2009. However, little has been done to help the small business avoid the ever-increasing fees – until now.
Congress and Credit Cards
Congress has been earnestly working on the Wall Street Reform Bill. Both the US Senate and House passed different versions of the same bill in May of 2010, and it has been in committee ever since, with the two wings attempting to reconcile the two. In addition, a recent additional amendment not in the original bills includes a regulation and limitation of the interchange fee allowed by credit card companies.
Fees Today and Tomorrow
Currently, small businesses pay a fee between 1% and 3% of every purchase a customer makes by credit or debit. Those fees go to the big credit card companies like Visa and MasterCard, as well as to the banks who issue the cards. However, is 3% of every purchase a realistic charge to merchants? Our representatives don’t think so.
While the credit card companies lobbied to prevent the regulation of the fees, a compromise was made and announced in June 2010. The compromise gives the Federal Reserve the ability to cap the fees charged by credit card issuers. With the new legislation, fees could be reduced to about half of what is now charged.
The compromise is that the regulation will only affect debit card transactions. All credit card transactions and swipe fees would continue to be unregulated. However, debit card swipe fees amounted to about $20 billion of the $62 billion earned by Visa and MasterCard last year.
Better Profits for Businesses
Finally, small business merchants who accept credit and debit transactions can rejoice with the news of regulated fees. Accepting debit card transactions will not have to cost you your profit margin so drastically any longer.
