By Biff Matthews
Contrary to what we might have hoped would happen by now, the greed and deception at the core of the worst recession since 1929 remains alive and well among publicly traded banks and card companies. Their entitlement stance is legendary. What's new is that their cupidity now threatens to kill the goose that laid our industry's golden egg.
The "how" is well-known: fee structures that are, in my view, purposely crafted to mislead and confuse, and whose administration is indiscernible even by those who have worked in our industry for a quarter century. What they have done to cardholders, they also do to merchants on the other end of transactions.
Today, the card companies and banks have taken a fighting stance against legislation that would clarify and control how these fees and rates are determined. Almost always, there are two sides to any issue. This is the exception. A financial cabal sought to replace cash (the ultimate in "regulated" payment forms) with plastic as the currency of choice. They got what they wanted, so now cards, too, will become "regulated" currency.
Had they been responsible (dare I say fair-minded?) in their dealings, the regulation they are now lobbying so hard to defeat would never have seen the light of day.
Isn't posting payments and transactions after their received date unethical? Isn't neglecting to post payments and transactions in order of receipt in favor of posting them to purposely create over-limit fees unethical?
In both instances, the Federal Trade Commission and courts found this behavior to be wrong. The same is true of posting checks and deposits - and "while not admitting guilt or wrong doing" is another way of saying banks got caught with their hands in the cookie jar.
It is unfathomable for a cardholder to exceed his or her credit limit under a system of authorization that is literally in real-time. Cardholders are allowed - in fact, encouraged - to charge more and exceed their limits, so as to generate over-limit fees, thus driving cardholders further into debt.
To say that cardholders are responsible for managing their accounts when they are encouraged (in fact, rewarded) to do otherwise in the name of profit is greed at its worst. Responsibility or mismanagement is a two-way street in these matters.
My desire is not to paint all banks with the same brush; however, the bad behavior shown by these institutions is so widespread, with consequences so serious, that I have chosen to speak directly.
Somewhat surprisingly, the ire of the consumer has not yet rained forcefully on financial institutions, despite said institutions' misleading practices and misdealing. Public sentiment should be far more negative than it is. (Where, indeed, is the consumers' bailout?)
Profiting royally at everyone else's expense was tolerated as recently as two short years ago. When times are good, there is far less incentive to push for change, even when it is desperately needed. But in today's economic environment, such behavior is not only unconscionable; it is irresponsible and ultimately unsustainable.
Greed and arrogance by the chosen few have toppled kingdoms andallowed the worst of dictators to ride the wave of public unrest to power. History repeats itself when the lessons of the past are not applied.
We don't pay exorbitant fees to transact with cash or write checks, and there is a growing understanding that perhaps all that plastic isn't such a great deal for everyone after all. Even its greatest promise - the promise of guaranteed payment and protection for the merchant - turns out to be a cruel illusion.
As I detailed in a previous column, even merchants who follow every rule can suffer terrible losses when they find themselves at odds with an institution whose only charter seems to be the collection of fees without providing value in return.
I have made it a hobby to ask company officials at every level what, exactly, the reasoning is for some of the fees paid to interchange - as well as the new "acquirer fees." The answers are always creative and interesting - and invariably different. Neither of the major card brands provides a consistent rationale for interchange and associated fees.
Surely they are doing something worthwhile with the $48 billion the National Retail Federation estimates they collected in 2008?
According to Diamond Management & Technology Consultants of Chicago, Ill., only 13 percent of interchange costs are used to cover processing - the original stated purpose of the fees. Over the last two decades, electronic POS transactions and automated processing have drastically pared down processing costs. But the fees involved move ever higher regardless.
Transaction and cardholder fees are clouded by smoke and mirrors - and where there is smoke, there is fire. On June 8, 2009, U.S. Rep. Bill Shuster, R-Pa., joined House Judiciary Committee Chairman John Conyers, D-Mich., to introduce House Resolution 2695, the Credit Card Fair Fee Act of 2009. The legislation would allow merchants to collectively negotiate the costs of some transaction fees.
The interchange bureaucracy is a fiefdom whose owners profit and provide little of value in return. In nature, the technical term for that kind of life form is parasite.
Perhaps we should regard interchange for what it is and work to eliminate the harm it causes the people and institutions who actually work for their living.
Biff Matthews is President of Thirteen Inc., the parent company of CardWare International, based in Heath, Ohio. He is one of 12 founding members of the Electronic Transactions Association, serving on its board, advisory board and committees. Call him at 740-522-2150, or e-mail him at email@example.com.
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