The Real Cost of Credit Cards: Small Business, Consumers, and Taxpayers All Pay the Price
In a move the AP described as “riding a crest of populist anger,” the House last week passed a credit card reform bill that goes after some of the industry's most predatory practices. But even if it makes its way into law, the new legislation will still leave the people plenty to be angry about. Credit card issuers have been furiously jacking up interest rates (even as the Fed cuts them), lowering credit limits, and generally scrambling to take another pound of flesh from an already battered American public.
Credit cards have yet another perverse effect on the overall economy, as well: They force up consumer prices. “Little attention has been given to the $48 billion in fees that credit card companies extracted from merchants last year,’’ writes Stacy Mitchell of the New Rules Project. “Largely invisible to the public, these fees, which amount to $427 per household, are ultimately passed on as higher prices to all consumers, whether they use plastic or not.’’ Most of these transaction fees are collected by Visa, MasterCard, and American Express, which together control 93 percent of credit card transactions in the United States.
While Visa and MasterCard set the rates--now averaging about 2 percent--it's the big banks issuing the credit cards that collect the fees. "Issuing credit cards has become a highly concentrated industry," Mitchell notes. "The top four card issuers— Citigroup, Bank of America, JP Morgan Chase, and Capital One— account for more than 70% of all cards in circulation.” Following the release of the "stress test" results, at least two of these four banks are expected to line up for a new round of bailouts from the federal government. Yet they will continue simultaneously dipping into the narrow margins of America’s business owners.