Worst…Idea…Ever

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.