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Will credit card reform mean higher interchange fees?

By Stephanie Armstrong

Federal Reserve

Congress has approved the Credit CARD Act, which makes credit card companies clearly state how long it will take a consumer to pay off their debt. There are also new restrictions on increasing interest rates. Though consumers gained protections from the credit card companies with this legislation, a rise in interchange fees will probably be the result.

"There is no doubt that companies are looking to pass the buck," says Jason Agivaive, co-founder of credit card processing company Nova Merchant Funding. "Already, credit card companies are instituting annual fees and are likely to continue raising interchange fees, which could affect merchants that accept credit cards."

Interchange fees are what merchants pay to their bank when customers pay for goods with debit and credit cards. Companies such as Visa, MasterCard and American Express impose an interchange fee every time a customer swipes their card for a transaction, typically 1 to 3 percent of the purchase total. Fees are usually higher for online purchases and debit cards tend to have lower fees.

Additionally, most of these charges come from cards issued by American Express, Chase, Citi and Bank of America. About 70 percent of all consumer charges are being placed on cards issued by these four financial institutions, according to Robert J. Shapiro, former U.S. undersecretary of commerce for economic affairs.

Credit card reform affects all merchants that accept credit or debit cards. Some merchants wrongly assume that little can be done about interchange fees. It is possible to try to negotiate lower fees with your bank simply by asking for a reduction or letting them know you will move your business elsewhere in order to find the best rate.

Article by Stephanie Armstrong

Published: March 17, 2010

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