by Joseph Kenny | 12/15/08

As the consequences the subprime mortgage crisis continues to reverberate across the country, a new aspect has been gaining press lately. Some of the nation's major retail stores, convenience markets, and gas stations are taking their case before Congress in an effort tot negotiate the fees that banks and other financial institutions charge them in order to process credit card transactions.

For example, big name retails like Target are arguing that the banks are making so much money from the fees that they turn around and offer credit cards to those consumers that have no business accessing a line of credit, and are likely to default on their credit card payments. This is the same doomed strategy that led the same banks to provide mortgages to homeowners who simply could not afford them.

The credit card fee issue is just the same old story, another form of subprime lending. This makes it a dangerous system in need of replacing before more banks find themselves requiring help from the federal government.

Part of the requested aid addressed by various merchants includes provisions for an antitrust exemption, so they will be able to combine their efforts in order to negotiate with financial institutions regarding the interchange fee, an amount between 1-2% of the purchase price that is paid to the cardholder's banks by the retailer's banks with each card swipe. The bank collects a fee from the merchant. The consumers will not see this charge since it is built into the price.

Most retailers are anxious to include the fee in the Congressional hearings planned for January 2009. The hearing will cover a range of topics relating to reorganizing the banking regulations. At present, the proposals issued by merchants are not receiving much support.

Banking groups and the credit card companies say the interchange fees will ensure that retailers are paid even if cardholders default.