If you’ve been following the credit card news blog here on IndexCreditCards.com, you’ll know all about “interchange” fees, which are also known as “swipe” fees. They’re the cut of the transaction value that retailers and other merchants have to pay every time your plastic gets swiped through a reader.

Since October 1, that cut has been capped for debit card use, a move that’s likely to cost banks upward of $6 billion a year. Merchants say they are going to pass on that savings to consumers in the form of lower prices and/or better service, although it’s too soon (if it ever proves possible) to measure how many are doing that, and how many are simply adding the cash straight to their bottom lines.

Credit card swipe fees to fall?

Fresh from their victory in persuading Congress to cap debit card swipe fees, some retailer trade bodies now have credit card interchange fees in their sights. The Retail Industry Leaders Association is already active, and, last month, the National Retail Federation (NRF) unveiled a $10 million lobbying campaign that is largely devoted to capping credit card swipe fees, according The Hill earlier this week.

Yesterday, David French, who’s a senior vice president at the NRF, wrote a blog on the federation’s website in which he argued:

…reforming debit card swipe fees was only the first step. It is estimated that credit card interchange fees generate about $30 billion per year for banks and card providers – for comparison’s sake, debit card swipe fees will now generate “only” about $14 billion per year. And the vast majority of these exorbitant fees go directly to the biggest handful of banks and the Visa and MasterCard duopoly.

Now that the banks’ unfair practices regarding debit card swipe fees have been highlighted and addressed, it is clear that banks are hoping to use higher fees on debit cards to push their customers toward credit cards in order to maintain their bloated revenue lines. As this transition occurs, it is crucial that Congress once again shine a spotlight on bank-interchange practices. Swipe-fee reform is a two-part job, and we are only halfway done.

Rewards credit cards at risk

That argument may sound powerful, especially as French reminds us that a quarter of U.S. jobs and one-fifth of the nation’s GDP rely on the retail trade. However, if you enjoy the benefits of cash back credit cards, travel rewards cards or gas cards, you may want to think again.

That’s because all these rewards programs are largely funded by interchange fees. And credit card companies are likely to have to scale back or even abolish them if a significant cap is imposed. Indeed, they could even have to impose higher annual fees, just as some banks have done on checking accounts as a result of the debit card cap.

There’s also an excellent argument why credit card swipe fees should be higher than those for debit cards. Retailers receive the full value of a transaction often pretty much instantly. But credit card companies effectively have to lend that money for nothing until the next statement due date. That’s a genuine additional cost that compensates credit card issuers for putting money at risk, justifying, at least in part, today’s interchange fees.

More credit card regulation unlikely

It’s hard to imagine the current Congress buying into additional regulation for the banking sector. Although with Congress, apparently nothing is impossible. It’s one thing to resist lobbying from consumer groups, and quite another to turn down a rich and powerful lobby such as the retail industry. Its ability to sway public opinion and make tactical campaign contributions rivals even that of credit card companies.

However, whatever happens legislatively, it’s likely to take years for any new regulation to take effect. So, in the meantime, enjoy all the benefits that your rewards credit cards can bring.

Published 10/06/11