Creditnet News Story
Those without credit cards still paying for swipe fees
Wednesday, July 28, 2010
By Linda McCarthy
A large amount of credit card swipe fees are being paid for by low-income consumers who purchase goods with cash. Because swipe fees help pay for rewards programs, consumers enrolled in them are being subsidized by those who don't benefit, a study has found.
According to a report from Reuters, which cited a study by the Federal Reserve Bank of Boston, 83 percent of the revenues banks make from swipe fees are actually paid by those who use cash to make purchases, a disproportionate percentage of which are low-income Americans. This happens because merchants build the cost of paying for credit card swipe fees into a product's price regardless of how the consumer pays for it.
The study said that even after accounting for rewards paid by banks, each household that makes more than $150,000 a year is essentially paid $756, while those earning less than $20,000 pay $23 each.
The Federal Reserve Board recently introduced new rules that govern how much credit card companies can charge for swipe fees, though it remains to be seen just how much of an impact this will have if vendors pass the savings on to consumers.
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