New study demonstrates hidden credit card fees take from the poor and give to the rich
WASHINGTON, DC — A report released by the Hispanic Institute finds that hidden credit card fees are causing a massive wealth transfer from low-income to high-income Americans.
Efraim Berkovich, an economist at the University of Pennsylvania, found that the bottom 50 percent of earners pay an addition $669 million for basic consumer products as a result of businesses raising prices to compensate for merchant fees. Meanwhile, the top 10 percent of earners get an additional $354 million in card perks, which are heavily financed by these fees.
“The problem is not just reward cards are heavily, if not entirely, financed through interchange fees,” said Berkovich, “it is that credit card pricing policies reward the affluent while the poor bear the cost.”
As Representative Linda Sánchez (CA-39) explained in reaction to the study, “Hidden credit card interchange fees can inflate the cost of nearly everything consumers buy, even when they pay cash.”
“This study demonstrates that credit card companies have secretly rigged the system so that everyday Americans lose out to those who enjoy top incomes; it also suggests that ‘unbanked’ Americans, including disproportionate numbers of Hispanics, who don’t have cards, are hurt the most by swipe fees,” concluded Gus West, Board Chair of The Hispanic Institute.
The Hispanic Institute is a nonprofit organization dedicated to informing and empowering Hispanic America. The Institutes’ studies are an essential part of its mission, and are designed to explore the evolving dynamics of the nation’s Hispanic community.
The full report is available online at www.thehispanicinstitute.org.
December 9, 2009 at 10:05 am
Part of the problem is that retailers and other businesses that accept credit cards have a very difficult time understanding the costs they pay for processing credit cards.
Some businesses can pay as much as 40-50% higher than other similar businesses with similar sales volumes.
There are literally hundreds of thousands of different pricing plans available to businesses that accept credit cards and the companies that process these payments have created a convoluted and confusing billing structure that makes it nearly impossible to compare pricing plans from different vendors.
If businesses are educated and take the time to arm themselves with the knowledge necessary to understand the pricing structure that underlies all credit card transactions, they would pay far less for this expense and consumers would benefit.