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Credit networks could lose billions on proposed swipe fee rule
Thursday, 06 January 2011 14:00
A proposed rule from the Federal Reserve Board would alter current transaction fee rules so that networks could only charge a percentage of the purchase price, usually between 1 and 5 percent, when consumers take on credit card debt to make a purchase, according to a report from Bloomberg News. Meanwhile, debit transactions would cost merchants only a flat rate of just pennies.Because of this, a purchase of $1,000 made with a credit card will still net lenders about $20 or so, while a similar purchase made with debit will only earn the new cap level of 12 cents, the report said.
Prior to the implementation of the newest regulations, credit networks were allowed to prevent companies from encouraging customers to pay with cash or other options that would result in lower transaction fees. But now, this practice is allowed, and it's likely that merchants will try to implement it in an effort to save money, the report said.
If approved, this latest change could spell huge losses for all credit networks, but it would affect American Express the most, because the company does not issue debit cards, the report said. The lender could lose as much as $38 billion a year as a result of consumers relying more heavily on debit and cash rather than taking on credit card debt.
"American Express is increasingly exposed," Chris Brendler, an analyst at Stifel Nicolaus recently wrote to clients, according to the report. "This significantly increases the threat of discounting as merchants will have much greater incentive to push consumers toward lower-cost debit cards."
However, some studies have found that consumers may not be receptive to companies that ask them to use certain payment methods, the report said. In one, 84 percent of respondents said they would be unlikely to continue patronizing a business if an employee tried to persuade them to use something other than their preferred payment method.
Merchants have long objected to these transaction fees because they cost even small, privately-owned companies as much as tens of thousands of dollars a year.
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Debtmerica is a leading debt settlement company that offers assistance to individuals and families who are experiencing financial difficulties and hardship.
We offer debt resolution programs that specialize in negotiated debt settlement that assists clients by reducing debt balances while providing an affordable monthly payment.
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Top Articles to Help You Lead A Debt-Free Life
- Debt Consolidation: “Debt Consolidation” is one of the most commonly misunderstood and misinterpreted personal finance strategies that consumers inquire about all the time. While some view it as a method of taking on new loans, others see it as a debt relief alternative. It is more important than ever for inquisitive consumers to have a very strong understanding of exactly what debt consolidation entails, and the impacts it can have on personal finances.
- Debt Relief: Debt relief is defined as a partial or total forgiveness of debt. When the term is used by the government, it usually refers to the forgiveness of debt to underdeveloped countries. Recently, it has begun to refer to the millions of consumers who are overwhelmed with debt seeking financial relief from their unsecured debt.
- Credit Card Debt: Credit card debt is an example of unsecured consumer debt, accessed through credit cards. Debt results when a client of a credit card company purchases an item or service through the card system. Debt accumulates and increases via interest and penalties when the consumer does not pay the company for the money he or she has spent.
- Debt Settlement: Debt settlement programs use a third party to negotiate lower balances and interest rates on unsecured debt. This type of debt management plan helps provide consumers an alternative to bankruptcy while reducing your outstanding debt.
- Credit Counseling: There are a numerous options for consumers who want to start getting their finances under control after accumulating large amounts of debt, which could inevitably lead to credit problems further down the road. Consumers who are in control of most aspects of their finances, but still feel like they could use additional help managing their debt burden, could certainly benefit from the assistance of a consumer credit counseling service.
- How Do I Get Out of Debt?: Now that the national economy is beginning to recover and people are having a better time dealing with their personal finances, many consumers who found themselves sunk deep in debt over the last few years may be asking themselves the question, “How do I get out of debt?” Fortunately, there are a number of avenues consumers can take to get out of debt, each with benefits and drawbacks depending on how quickly people need to fix their financial problems.
- 10 Tips to Avoid the Debt Trap: Have you ever thought about why so many of the people you know are struggling with debt? Do you ever wonder why banks keep lending to certain individuals, even when they are falling behind on their payments? Did you know that debt problems are a leading cause of major societal problems, such as stress, divorce and alcoholism?
- Credit Management: Many consumers are finding themselves buried under a pile of mounting debt. With interest accumulating month after month in addition to late fees being charged, many consumers are finding it difficult to make just the minimum payments on their credit cards. Although this may seem like an endless battle, with a strict budget and some discipline there are credit management strategies and solutions that will allow consumers to reduce or even eliminate their debt.
- Credit Card Debt Reduction: In recent months, many Americans have made a greater effort to seek credit card debt reduction and reduce the balances they owe, but some may not know where to start. Fortunately, there are several options available for consumers thathave a financial goal to achieve credit card debt reduction.
- Credit problems: Paying down high levels of debt is one of the best ways to improve credit problems and increase one’s credit standing. But many people cannot do that so quickly, especially in this economy. About one-third of a credit score is based off of a credit utilization ratio, which is the total creditbalances divided by the total credit limits. A great target is to use no more than 30% of one’s available credit.
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