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Swipe Fees Hit Retailers, Customers

Harriet Jones


As the price of gas climbs past $4 a gallon, there’s another phenomenon you may well have noticed at the pump – the re-emergence of cash and credit pricing. It comes as some retailers renew the push for legislation to curb credit card swipe fees. WNPR’s Harriet Jones reports.

It’s a busy lunchtime at J & A Gas and Go, a filling station on the main drag into Manchester.  And while most customers simply swipe their cards at the pump, some come inside before filling up.

“I’m getting gas – how much? -- five on two …..”

Desmond Paige from Manchester is one regular who makes the extra trip to the cash register.

“Always, I just always pay cash. Credit cards seem to get people in trouble.”

And for sure he appreciates the discount he’s now getting of several cents a gallon.

“I look at it like, credit they’re not actually receiving the funds right then and there immediately. And you should be able to pay a cheaper rate if you’re paying with cash – definitely.”

But outside, Damien Doran from East Hartford is all about the convenience of plastic.

“If I have to go the ATM to get the cash, I’d just as soon use the card.”

Does he feel that it’s fair that he pays a premium to fill up using his credit card?

“I mean I just feel like that’s the cost of doing business. They shouldn’t accept credit cards if they don’t want to charge more. If I go to Subway to buy a grinder, they’re not going to charge me more if I pay with cash or a credit card. I don’t really think it’s fair.”

The owner of this station, John Tischio, says he doesn’t think his customers understand.

“Swipe fees are a very expensive service I have to pay for to accept credit cards. It’s almost as much as my payroll. I mean it impacts my business greatly. On a gallon of gas it’s about 8 cents every time you swipe your card, per gallon. It adds up and adds up quickly.”

It adds up, because gas is a credit card dependent business.

“We used to be about 90 percent cash, 10 percent credit. Today it’s 80 to 87 percent credit cards and the balance is in cash.”

That’s Michael Fox of the Gasoline and Automotive Service Dealers of America. He was one of the architects of the legislation, enacted back in 2008 that allowed Connecticut gas stations to institute differential cash and credit pricing. He says as the price of a gallon rises, the retailers’ margin remains the same, but those percentage swipe fees go up.

“If you’re going to use the credit card it appears you’re paying a higher price. You’re not really paying a higher price. The retailer’s just showing you this is the cost of using that credit card because the fees have gotten so high.”

Last year, the Dodd Frank bill on financial reform took on the issue of swipe fees, not on credit cards, but on debit cards. An amendment to the legislation, sponsored by Illinois Senator Dick Durbin, established the principle of capping those fees. But many retailers have an issue with the way the amendment was actually implemented by the Federal Reserve, says Jeff Lenard of the National Association of Convenience Stores.

“It costs about four cents to process a debit transaction. So the Fed looked at numbers, found that seven cents might be an effective level, 12 cents might be an effective level. Instead the Fed came down with a final ruling that capped fees at 22 cents. But what a lot of the credit card companies have done is that they’ve taken the cap of 22 cents as the floor.”

That 22 cent flat fee is about half the level of the average debit transaction fee prior to the legislation. It’s helped retailers on big transactions, like filling up a gas tank, but it’s been a disaster for those stores which rely on small purchases, where previously the percentage fee might have been something like three or four cents.

“If you buy a newspaper, if you buy a cup of coffee and you pay on your debit card, that fee, outweighs any margin that the retailer has. And in some cases the retailer’s better off if you just stole it.”

The banks aren’t happy either of course. Bank of America’s swipe fee revenue dropped $441 million in the first quarter after passage of the legislation, although it still made more than a billion dollars from debit card swipe fees in the three-month period. Jeff Lenard says that impact doesn’t bode well for any legislative pressure on credit card fees in the near future.

“The Durbin amendment fight was brutal, and there were a lot of Congressmen that were forced to say, ok do I side with my allies in the banking industry or do I side with retailers? And if you ask a lot of Congressmen, they’re not ready for another big fight.”

That may be why Lenard’s association has instead taken its fight over the implementation of the Durbin Amendment to the courts, filing a lawsuit in an attempt to get the Fed to further lower the cap on fees. But at his Greenwich headquarters Mike Fox of the Gasoline retailers says he believes the best way to extend the fight to credit card fees is through consumer pressure.

“When you start to see consumers stop using credit cards. When you shut off the millions and billions of dollars that credit card companies are going to make, they have no choice but to respond.”

Whether the spread of cash or credit pricing really forces enough of us to walk inside the gas station rather than swiping at the pump, remains to be seen.

For WNPR, I'm Harriet Jones.