Or Why We Need a Consumer Protection Agency for Banking

Usually businesses want to make it easier for consumers to buy things.  But it seems that Visa, the credit card company, has made it easier for themselves to charge more for the same transaction.  That makes it harder for us – but we might never know what’s happening.

Today’s New York Times discloses that: “When you sign a debit card receipt at a large retailer, the store pays your bank an average of 75 cents for every $100 spent, more than twice as much as when you punch in a four-digit code.” Apparently this information is in the fine print, but it took the magnifying glass of a Times’ reporter for us to see.

Visa thinks it doesn’t matter to the consumer, since the merchant pays the fee.  But, of course, we all do end up paying it, eventually, as it becomes part of the cost of doing business.

We could easily be encouraged to use our PIN codes to help keep costs down.  Not having read the fine print, however, we usually don’t know about our choice.  Indeed, it turns out there are incentives to sign our names instead: “’When you use your Visa card, you have a chance to win a trip to the Olympic Winter Games,’ a new Visa commercial promises.  The commercial does not explain the rules, but the fine print on Visa’s Web site does: nearly all Visa purchases are eligible — as long as the cardholder does not enter a PIN.”  (See, “How Visa, Using Card Fees, Dominates a Market.”)

We could just treat this is plain old marketing savvy, but it is more deceptive than that – and it relies on our unconscious trust that fees are fair, reasonable, and stable. It used to be that the debit card was just a way of transferring funds directly from your bank account to a merchant.  Unlike a credit card, you were not actually borrowing money.  But that distinction is long gone.  Inch by inch, day by day, the rules were changed.

And then there are other hidden fees that a gullible or ignorant public ends up paying.  “Some merchants are infuriated by a separate, larger fee, called interchange, that Visa makes them pay each time a debit or credit card is swiped. The fees, roughly 1 to 3 percent of each purchase, are forwarded to the cardholder’s bank to cover costs and promote the issuance of more Visa cards.”

“Interchange revenue has increased to $45 billion today, from $20 billion in 2002, driven in part by the surge in debit card use.  Some merchants say there should be no interchange fees on debit purchases, because the money comes directly out of a checking account and does not include the risks and losses associated with credit cards.”  But few merchants have the resources or the clout to fight Visa about these policies – and they inevitably pass on that cost to consumers:  “the National Retail Federation says the interchange fees cost households an average of $427 in 2008.”

I think we know that something like this is going on sight-unseen.  But without knowing the specifics, we just go along – and without federal oversight it will inevitably continue.