In July, former Senator Edwards gave a long, wide-ranging, very good interview to BusinessWeek. Here’s the one section where he talks about the issue:
What we’re going to do is restore balance in the credit-card market. I am proposing a Borrower’s Security Act that would do the following: first, require credit-card companies to disclose the true cost of making only minimum payments, as many consumers do. Second, I would restore a 10-day grace period before imposing late fees and penalty rates. Third, apply interest-rate increases to future balances only. And fourth, end the practice of universal default, where a creditor can change a borrower’s terms based on their debt payments to other creditors. We also need a new consumer protection commission, which I would call the Family Savings & Credit Commission, whose job it’ll be to review all the financial services products that are being marketed to families and ensure that the terms are reasonable and fairly disclosed. [The commission would] oversee all types of financial institutions whether chartered under federal or state law.
These are all great. And He lists these four on his website. He knows his issues, all right. But I’d like to see number 5:
5) Assure that all credit card fees are cost-based.
In short, any fee charged by a credit card company must a) be justified, and b) reflect the cost of whatever service is being performed that the fee is being charged for. This is an issue for the Consumers Union’s credit card agenda and for merchants especially. And it’s merchant fees where Edwards could find new headway.
If you haven’t followed my diaries on the subject of the interchange fee, see my first one here: “The Biggest Reverse Robin Hood Scheme You’ve Never heard Of.” If you’ve never heard of it, that’s not your fault — the banks which control the credit card associations prefer it that way. So while proposal #5 is just a good idea in any case, it might carry specific political benefits if he put some emphasis on that fee in particular. In practice, this would likely remove the interchange fee from the reward card equation. Rewards on Gold and Platinum cards come from the fees incurred by these transactions. That’s also where the banks’ never-been-higher profits derive. But if it costs $.50 to send the payment through, don’t worry — they’ll take a lot more.
I’m not sure where now but I read recently that only 13% of interchange fees actually goes towards paying the processing transactions — the rest goes to fund rewards as mentioned above as well as advertising and junk mail. Transactions should be no more expensive than they need to be. The fee as it was originally created was a necessary measure to cover costs. No one here is saying there shouldn’t be *any* interchange fee (although some foreign governments are considering just that).
And though the fee is charged to businesses large and small that have merchant credit card accounts, it is a consumer issue, too because it drives down your purchasing power. It is an artificial form of inflation, where the premium above regular prices goes into the pockets of bank shareholders and toward their next free airline ride. Interchange fees are reflected in the price of nearly everything you buy. As much as $2 of every $100 you spend goes to card issuers — no wonder interchange has risen a staggering 117% since 2001. Moreover, bringing this fee back to what it was all about in the first place would give smaller merchants more pricing flexibility — another way to compete for your business, and maybe save you a bit of money. The current system costs the average American family more than $300 a year in interchange fees.
This might also be a good way to reinforce his opposition to the bankruptcy bill, and keep up the fight for working Americans. He has been a good advocate against the 2005 bankruptcy bill, but not everyone has forgotten his voting for a bad one in 2000 that Bill Clinton had to veto. I noticed the Dodd campaign is pushing a quote from Paul Wellstone in 2001, who said the bill “punishes the vulnerable and it rewards the big banks and credit card companies for their poor practices … We are heading into hard economic times and we’re going to make it hard for people to rebuild their lives.”
Small business owners might be where Edwards can make up the most support over the next few months I think we can all agree we need bankruptcy reform, and credit card reform. And I know when it comes to merchants, I know how the rising interchange fee is hurting them. If Edwards wants to make some inroads with a group that might be skeptical of him, I can think of no better way than by bringing them into his fight against the credit card industry.