by Linda Doherty/NJFC President
The New Jersey Legislature has fast tracked legislation that would prevent retailers from charging credit card transaction fees to consumers and yet credit card companies and big banks can continue the predatory practice of charging retailers exorbitant credit card fees.
A few things are curious about this rush to legislate. Not one member of the New Jersey Food Council charges or has announced plans to initiate customer credit card transaction fees. Additionally, another point to consider is why this legislation only singles out retailers but still allows other business enterprises like hospitals, construction or remodeling companies, Amazon or internet sites, or even the State of New Jersey to charge credit card surcharge fees.
To provide perspective on the dirty little secret of the big banks and credit card companies is that every time a customer swipes a credit card at the grocery store, banks and credit card companies collect up to 4 percent of the total bill. These hidden fees equate into over $4 billion a month—$50 billion a year—that banks collect, merchants pay and consumers can’t spend.
These fees are too high because they aren’t set by a free market. Visa and MasterCard together control 80 percent of the credit card market and they each separately fix the fees that their banks charge. Those banks, mind you, set their own fees for everything else they charge, but when it comes to swipe fees they all use centrally fixed fees. That has made swipe fees consistently the fastest growing cost to merchants.
The cost of these swipe fees has more than tripled since 2004, despite improvements in technology that should be lowering costs. In fact, the actual cost to process a credit card transaction is around 4 cents, no matter what the total transaction amount is.
So who is pocketing the difference between 4 cents and up to 4 percent of a transaction? Not the merchant. The banks and credit card companies are padding their profits at consumers’ expense.
When the card companies hike up hidden swipe fees, merchants have no choice but to include this cost in the price of the goods they sell. No business owner can absorb this kind of expense and keep the doors open for long. In turn, everyone has to pay more regardless of if they are paying with cash, check or credit card.
The New Jersey grocery industry employs 150,000 people in several thousand stores across the state. We are an essential resource for feeding families and an important part of the economy. The grocery industry is also an extremely competitive industry with retailers competing for customers by trying to offer the most value at the lowest cost. With razor thin profit margins, around 1 percent annually, grocery stores are always looking for ways to save the consumer money.
It’s one thing when food prices go up because a drought decimated the corn crop or because rising gas prices make it more expensive to bring food to our stores. We still negotiate with suppliers in a competitive market to get the best deal.
It’s another thing entirely when we are forced to pass along rising costs for one reason alone—because the credit card companies and big banks hide from competition and fix fees instead. Retailers have never been able to negotiate with VISA and MasterCard for lower fees on credit card transactions.
The current bill being considered in the legislature does nothing to solve the problem of the hidden fees. By banning surcharging it ensures these fees will remain artificially high and hidden from the consumer and merchant alike. This bill allows the big banks and credit card companies to continue with business as usual setting prices behind closed doors in secret.
We need a fair, transparent system for setting swipe fees so competition, and not price-fixing, guides what we pay.
New Jersey consumers are having a tough enough time making ends meet, especially when so many families are still suffering from Super Storm Sandy. They shouldn’t be paying more for groceries just because the big banks and credit card companies are hoodwinking the consumer and using the integrity of the legislative process to do their bidding.
Linda Doherty is president and CEO of the New Jersey Food Council, a Trenton-based trade association representing New Jersey supermarkets, convenience stores, independent grocers and food distribution companies.