Study: Interchange Takes Toll on Holidays

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Study: Interchange Takes Toll on Holidays

WASHINGTON -- A recently released study by the American Consumer Institute (ACI) found that interchange fees -- a charge levied on merchants by credit card companies as a cost of accepting credit cards -- is putting a damper on holiday spirit by driving up the cost of goods and services for all consumers.

The ACI estimated Interchange fees will total approximately $40 billion this year. Because the fees are paid by merchants that increase the cost of their goods and services to cover the fees, all consumers -- not credit card users alone -- pay higher prices, according to the group.

"For every $100 charged, banks take 2.50 cents, and merchants receive $97.50," Economics Professor Joseph Fuhr, who conducted the analysis, said in a conference call detailing the findings.

When split among all U.S. households, interchange fees cost an estimated $337 per household this year, the organization stated.

And since each household is expected to spend $740 this season, according to a Gallup poll cited by ACI, annual interchange fees account for roughly one-half of American households' holiday spending.

"This is especially important since the economy is down, and stimulus to employment is Christmas spending, which is down from $805 last year," ACI Senior Fellow Dr. Larry Darby said in a conference call detailing the findings. "Reports from Black Friday weren't all that good. Retailers report it was better than their worst years, but not very good, either."

The study also found interchange fees fund more than just the cost of processing transactions. Around 15 percent of the $40 billion is spent on processing, while "much of it goes to marketing expenses," such as mail solicitations, Darby said.

In addition, the report estimated 40 percent goes to reward programs. The reward programs' points are "mainly high-ticket items built up by higher than average income households," said Darby. "Lower income credit card users subsidize these points, also cash and check users pay for them as well."

Moreover, the study found convenience stores and gasoline retailers annually pay credit card companies more than twice as much as they earn in profit, according to the ACI.

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