Worst…Idea…Ever

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Just when I am thinking that the future looks bright for credit card holders, yesterday’s Wall Street Journal features an article titled,” Paying With Cash Could Soon Pay Off “. It seems that Senators Richard Durbin (D., Ill.), and  Christopher Bond (R., Mo.) are pushing a measure that would prevent credit card companies from requiring their merchants to charge the same price for cash or credit.

If this amendment were to pass, merchants would be free to tack on whatever fee they feel like to credit card transactions.    The idea is that retailers should be allowed to advertise a price that doesn’t include payment fees.

Why This Is Terrible

First of all, the last thing we need in this world is less price transparency.    Price transparency is what allows you as a consumer to make informed decisions about your spending.   Right now, the ultimate in price transparency is in gasoline retailing, where all taxes are included in the advertised price.   You can tell which transaction is the cheapest with a simple glance at the sign as you drive by.

The worst case scenario in price transparency is probably in health care, where you frequently don’t even know the price until long after the services are rendered.   Following up closely behind is rental car companies where the price you pay can be %40 higher than the price you are quoted.

The last thing you need right now is for grocery stores, gas stations, and travel companies to start adding three or four percent to every credit card transaction.

Why Merchants Pay Fees To Credit Card Companies

Like consumers, these fees are voluntary as part of an agreement with the credit card industry.   While I have sympathy for anyone who does business with this industry, processing credit cards is a valuable service for merchants.    It allows them to avoid the hassles and risks of cash.   Once the transaction is approved, they are assured of payment for their goods and services, even if the card holder defaults.   They do not have to worry as much about employee theft or even armed robbery when their store contains little cash.    In many situations, such as gas stations, credit card transactions take place without cashiers, saving them an immense amount of labor.    New businesses are also able to attract customers, since those paying by credit card are assured that they won’t lose their money if goods or services are not provided.    In short, the credit card provides safety to both sides of the transaction, ultimately facilitating commerce.   Less safety equals less commerce.   That explains why you don’t make big purchases from unfamiliar vendors with cash.

I know that small business owners hate paying credit card transaction fees, yet they are all free to quit.  For example, my favorite bagel store does not accept credit cards.   Their product is so good, and their prices are so reasonable, that I am willing to scrounge up a cash or check to be a customer.   Sure, they are taking the risk that a check will bounce, but I imagine the lack of transaction fees, which are a higher percentage on smaller transactions, outweigh the risk of people writing bad checks for bagels.

Who Supports This Idea?

Many small retailers do, however, I imagine large companies do not.   They know that accepting credit cards makes their life a lot easier, and they will not benefit much from having to process time consuming transactions involving cash and checks.   If you have ever been stuck in line at the grocery store behind an old lady digging through her purse for change or filling out her checkbook, you know what I mean.

The National Association of Convenience Stores supports this.  I honestly have no idea why.   Would they be better served if they take convenience out of their stores?     Are they really going to profit if they have to hire more cashiers to process gasoline transactions that used to take place quickly at the pump?

Why I Would Give Up Credit Cards?

It is no secret, as your Reward Card Guru, that credit cards are my preferred method of payment.    Since I pay them off in full, every month, they are merely an alternative to cash, not a method of financing purchases.  Beyond that, I am used to receiving an award when use my card, not being charged a transaction fee.   In fact, I refuse to use any card when I travel that charges a foreign transaction fee.    If this amendment were to be included in the final bill that becomes law, we will essentially see foreign transaction fees on most purchases in the United States!

If that were to happen, I would quickly do two things differently.    First, I would avoid, as best as possible, any company that adds fees to credit card transactions.      Second, I would start doing my best to carry cash or checks in order to pay for goods and services that are charging me extra for credit card transactions.    In short, my credit card use would decline dramatically.

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5 Responses to “Worst…Idea…Ever”

  1. Auditioning For Adulthood Says:

    Wow. This would really change things up. But what are the chances of the bill actually passing?

  2. Eric Says:

    Again, worst idea ever! :(

  3. Neil Says:

    Hi

    I agree totally. I find that money added at the end of transactions very annoying, e.g. the ridiculous booking fees added when you buy tickets online.

  4. El Cheapo Says:

    Yeah, this sounds like a horrible idea for consumers. I like using my credit card so I don’t have to carry lots of cash on me, but this could make it difficult. Let’s hope this doesn’t get passed and dies like so many other bad ideas.

  5. beachgeek Says:

    Wow a thought provoking article but with a lot of misinformation in it.
    First as a business owner of both a brick and mortar retail store and online stores I can say that yes the ability to take credit cards is not only helpful but necessary.
    I would rather have cash all day long and not pay the 2-3% or higher fees to the CC companies which comes directly off my bottom line and before I get my money. Cash is good credit card payments are necessary but not desirable and if keeping cash on hand then you need to move or hire security.
    Taking a credit card doesn’t make life easier and takes quite a bit more time but I can see the definite advantage of the convenience store gasoline retailer at the pump transactions.
    I guess you could say the processing fees are voluntary but by that standard so is paying Federal income tax. You might want to restate that assumption….
    Lastly, taking a credit card transaction is no guarantee of getting paid and the money can be snatched back from the merchants account without warning at the whim of the processor and only at the word of the consumer that makes a dispute and without giving the merchant any opportunity to respond.
    Services like Paypal are in fact notorious for freezing funds for as long as 1 to 3 years while in dispute.

    Why is it that the consumer feels because they choose to use a credit card to shop that the store owner should pay the fee for them?? Why not split it or even the consumer just realize that is the cost of using a CC to buy goods?
    Many gas purchases have over the years and still have a price for credit card and a price for using cash or debit which is completely fair and makes sense.
    Nothing unfair or non transparent about this at all and thankfully we can advertise and sell our goods at any price we like as it is still a free country. The consumer decides with their loyalty and patronage to the businesses what the market will be.

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