by Joseph Kenny | 02/18/10

Though the Credit CARD Act becomes effective this month, some believe it does not institute enough reform. The reforms benefitting consumers include limits on when interest rates and fees can be raised on credit card accounts, but there is still a need to reform swipe fees.

If you think swipe fees only affect the retailer, you would not be correct. Fees paid by retailers are passed on to consumers and the swipe fees amount to billions of dollars every year. In addition, the people who don’t even own a credit card are paying additional amounts for goods and services. That is patently unfair in the opinions of many.

The consumer advocates dealing with this matter include members of the Merchants Payments Coalition. The retail industry group believes the swipe fees are unfair to both businesses and consumers. The group is lobbying the California legislators to convince them to take credit card reform a step further.

Swipe fees are the fees charged by the credit card company to the retailer whenever someone uses a credit card. The estimates are that every $2 out of every $100 charged by consumers on their cards is going towards fees. The major credit card companies and the banks issuing credit cards collected approximately $48 billion in fees during 2008. Many people don’t even know the retailer pays a fee when payments are collected using credit cards.

In California alone the fees amounted to $5 billion and that represents a major amount of markup on goods and services to cover these fees. There is a catch to reform though. Visa, MasterCard, and other financial institutions are already facing the possibility of plenty of revenue loss due to the Credit CARD Act. They are concerned about the impact of the new legislation and implementing even more reforms could worsen their revenue outlook.

Still, consumers who bear the brunt of the swipe fees tend to be the lower income consumers who don’t even use credit cards. This means the poor and lower middle class are covering the fees generated through purchases made by wealthier consumers. Consumer groups believe this is simply not fair and needs to be changed.

The pressure on legislators to fix this problem is increasing around the country. Chances are though those changes will not be made during the next session. With a country trying to pull out of a recession and credit card reform legislation already passed there is no hurry to do more right now. The attention of legislators has turned to the economy and jobs formation and there will be reluctance to pass more legislation that could lead to layoffs even in the financial industry.

Of course, from the viewpoint of consumer advocates, the proposed reforms are needed anyway. You can tell people to manage their credit card debt and save more money but that won’t correct the inherent unfairness of swipe fees. With millions of Americans already struggling to make ends meet, the idea of paying higher prices to cover swipe fees just doesn’t sit well at all.