Santa's Not the Only Surprise This Season, According to NACS

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With all the hidden credit card fees that must be paid, a modern version of the popular Christmas tune the "The Twelve Days of Christmas" should be renamed the 12 "daze" of Christmas.

Visa and MasterCard rules effectively require that interchange be built into prices and make cash discounts all but impossible, so these fees take money out of consumers' pockets regardless of how they pay

For instance, PNC Financial Services Group's annual Christmas Price Index that calculates giving true loves every item in the cherished "Twelve Days of Christmas" - from 12 drummers drumming to a partridge in a pear tree - would cost more than $75,000 in 2006. However, the bank conveniently leaves out the hidden cost of credit card interchange fee that consumers pay, which adds upwards of $1,500 to this fabled purchase.

Interchange is a percentage of each transaction that Visa and MasterCard banks collect from merchants every time their credit or debit cards are used to pay for a purchase. The fee varies with type of merchant, transaction and card, but averages close to 2 percent for most credit card transactions.

In 2005, U.S. consumers paid more than $30 billion in interchange fees when using MasterCard or Visa cards, double the amount they paid in ATM and late fees combined.

Shockingly, interchange rates vary significantly by country, and U.S. rates are among the highest in the world, despite having the most-advanced technology infrastructure to process transactions. For instance, in the United Kingdom, consumers hoping to play "Father Christmas" pay interchange rates roughly half of those in the United States.

"The Grinch can't hold a candle to the credit card companies," said NACS Vice President of Government Relations Lyle Beckwith. NACS is a founding member of the Merchants Payments Coalition (MPC), a group of about 20 trade associations representing the retail community that is fighting for a more competitive and transparent card system that works better for consumers and merchants alike.

The cost of items referenced in "The Twelve Days of Christmas" increased about 3 percent over the past year, according to the PNC survey, while interchange fees increased at a rate nearly six times greater - 17 percent, according to the MPC.

"It is outrageous how much Visa and MasterCard and their member banks are needlessly saddling consumers with these hidden fees that grow every year," added Beckwith. "Among other things, these fees are fueling the flood of 'pre-approved' credit card come-ons stuffing consumers' mailboxes, and making shredders a popular Christmas gift for consumers concerned about identity theft."

"Visa and MasterCard rules effectively require that interchange be built into prices and make cash discounts all but impossible, so these fees take money out of consumers' pockets regardless of how they pay," Beckwith added.

Given Visa and MasterCard's refusal to fully disclose operating rules that govern interchange, Beckwith added one hope: "Perhaps these credit card companies' resolution for 2007 should be that they provide greater transparency as to why U.S. consumers pay more than $30 billion a year in interchange fees, lining the companies' pockets and funding everything from junk mail to marketing gimmicks that benefit neither consumers nor retailers."

NACS, the association for convenience and petroleum retailing, is an international trade association representing more than 2,200 retail and 1,800 supplier member companies. The U.S. convenience store industry, with over 140,600 stores across the country, posted $495.3 billion in total sales in 2005, with $344.2 billion in motor fuels sales.

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Jeff Lenard
NACS
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