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Transaction fees are big business for credit card companies



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SALT LAKE CITY -- Consumers are very aware of credit card interest rates, especially going into the upcoming shopping season. But people may not be aware of another issue with credit cards -- transaction fees, a surcharge banks tack on every time a credit card is swiped.

**What is an interchange fee?**
An interchange fee, also known as a transaction fee, is paid by business owners to the credit cards companies to cover the cost of processing the credit card transactions. The cost of these fees is set by the credit card companies, and currently the United States does not regulate these fees.
It's the kind of fee a lot of people don't know about, but it adds up. Credit card companies charge between 2 and 5 percent of the purchase every time someone swipes a credit card. Consumers are paying for it, but not directly. The fee is charged to businesses first. It makes it especially hard for small operations, like Shop-N-Go in Salt Lake City.

"They're making a heck of a lot of money. They probably make a bigger percentage on a lot of things in here than I do, you know?" Shop-n-Go owner Dave Smith said.

Across America, it does add up to big money. Trade journals report $48 billion profit for banks in 2008, just from transaction fees. According to Independent Business Groups, that's more than a quarter of all credit card revenue, and more than banks collect in credit card late fees, over-limit fees and ATM fees combined.


VISA, MasterCard and American Express control 93% of all card transactions.

Congress is looking into transaction fees. It's part of a wider look at credit card reform.

Sen. Chris Dodd, D-Conn., said, "For too long, credit card companies have made tremendous profits, excessive credits, in my view, charging consumers outrageous fees or raising rates whenever they felt like it, it seems."

The Merchants Payments Coalition, made up of reputable groups like the Utah Food Industry Association, the Utah Retail Merchants Association and the Utah Petroleum Marketers & Retailers Association, says only 13 percent of the interchange fees actually goes for transaction processing.


An average of $2 out of every $100 spent goes to transaction fees. In 2008, U.S. retailers paid approximately $48 billion in transaction fees.

At another local business, Acme Burger in downtown Salt Lake City, the credit card fees have them sizzling. For a place known for their burgers and fries, the last thing they want to do right now is raise prices to pass the fees along. Manager Ashley Gross says that may be what she has to do.

"If the fees go up from the credit card companies, then we may have to charge a percentage of the cost that we're being charged on to the customers. I don't want to do that," she said.

There is currently a lot of focus on credit card fees in general, but transaction fees are big, with businesses large and small fighting them.

The banking industry defends itself by saying it is charging for a service and that people are paying for a convenience. Banks caution lawmakers not to let businesses shift the cost of processing credit card purchases.

E-mail: rpiatt@ksl.com

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Richard Piatt

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