The Unseen Credit Card Fee

Did you know that merchants pay a fee to process credit card purchases when you shop in their stores? These are called interchange fees. They are represented by a percentage of all of the sales that are charged onto credit cards which is only several points. But it adds up quickly for merchants. There are a few things you need to know about interchange fees and how they affect you as a credit card user.

Higher prices

Interchange fees are one of the highest expenses of a merchant right behind payroll. In fact, they are more than rent most of the time. That creates a situation where merchants are forced to raise prices as an off-set to these fees. They will say otherwise, but it has been all too often proven otherwise. Take away: merchants that do not accept credit cards might have lower prices.

Convenience to you

Merchants do not have much of a choice in accepting credit cards if they want to remain competitive in today's retail market. Not doing so puts them at a disadvantage to their competition. Take away: it is easy for you to walk in and pay for your purchases with credit or debit cards because of this system.

Pending legislation

There is a law pending that will likely create a higher fee for interchange rates for merchants. This law will allow merchants to charge higher prices specifically when you use credit cards for your purchases. Take away: higher interchange fees means higher prices for you at the register.

There are different interchange fees for different merchants from card issuers. For example, MasterCard has over 120 different rates for the various kinds of retailers. Supermarkets have the lowest rates, while Internet based retailers pay the highest.

Knowing the above information can help you be a wise shopper and user of credit cards.

Customers Convince AmEx to Get Rid of Gift Card Fees

In the past, American Express gift cards were subject to $2 monthly maintenance fees beginning one year after the card was purchased. Thanks to a push from customers who told AmEx the fees diminished the value of the gift cards, American Express has decided to change its ways.

Effective immediately, there will no longer be a monthly fee on AmEx gift cards. This is also true for cards which have already been purchased. So if you’ve been holding on to an AmEx gift card for a while, you can rest assured that your balance won’t slowly seep away.

There is still an upfront fee associated with gift card purchases, but monthly fees are a thing of the past. In fact, American Express has elected to do away with all fees after purchase.

Thanks to new legislation, other gift card issuers will have to rethink their own fee structures. In August of 2010, it will no longer be legal to charge dormancy fees on gift cards unless those cards have been inactive for one year.

Credit Card Interest Rate “Floor”

While interest rates may be falling across the board, it seems many consumers aren’t noticing the interest break on their credit cards.  In fact, many are paying the same interest rate or higher than they were before.

How is that possible when most credit card interest rates are tied to the federal funds rate?  When the federal funds rate decreases, the credit card interest rates should fall along side it. 

This would happen if the bank that issued your credit card didn’t have a “floor”.  An invisible line that the credit card interest rate cannot drop below.  For most cards tied to the federal funds rate and that have a floor - that floor has already been reached which means the interest rate can’t drop any further.

Some of the countries biggest credit card issuers report having an interest rate “floor”, including:  Wells Fargo, HSBC, Discover, SunTrust and National City (on at least some of the cards they issue). 

Wachovia has a penalty interest rate for consumers who pay their credit card payment late twice in a row.  They have a floor for their penalty interest rates and cash advance rates, but the interest rate on purchases made on a Wachovia credit card do not have a floor. 

Credit card issuers reporting no interest rate “floor” include Bank of America, American Express and U.S. Bank.

Two issuers with an unknown policy for interest rate floors include Chase and Citigroup, as they don’t disclose whether they have this policy or not.