Politics at the gas pump


These signs have started sprouting at the pumps of some area gas stations. What’s it all about? It’s an attempt by the companies to get Congress involved in the credit card company practice of charging merchants every time a credit card purchase is processed.

The companies are making more money off the fees now that recent card card reform in Washington has limited some of the profits from high interest rates and fees charged to people who carry a balance.

Robert Shapiro, a former Clinton administration advisor and author of a study on swipe fees wrote on Forbes.com in February that the credit card legislation should’ve included limits on “swipe fees.”

While free market competition tends to drive prices down, the kind of cartel-like competition that goes on between the handful of major credit card companies–Visa, MasterCard, American Express and Discover account for 85% of the market–drives up these fees. The credit card companies recruit banks to their networks by promising them higher fees paid by consumers and merchants, and the banks try to attract new, well-to-do subscribers by offering rewards that are then financed through these fees. All of these costs are hidden from consumers.

“Credit card fees are hidden to our customers and have increased at a double-digit annual compound growth rate during the past decade,” Tony Kenney, the head of SuperAmerica Speedway said.

Shapiro’s “report” said without the fees, up to 250,000 jobs could be created. Not everyone is buying that, including Mike Duff, writing on BNET.

Besides the inherently dubious nature of the assertion that X amount of money translates into Y number of jobs, the retailers ignore the other side of the transaction. To wit: If banks are deprived of profiting from credit-card transactions, which is what the study bases its numbers on, how many bank jobs will be lost?

The retail organizations face other problems if they want the government to intervene with the credit-card industry. First, the government is propping up the banking system. Taking money out of the finance system, as in reduction of credit card fees, could mean money out of the U.S. treasury system.

Plus there’s the philosophical question in the wake of recent health care and banking legislation: Is there a compelling public interest for Congress to intervene? Or is it a matter between private businesses?

  • Wired had a good piece a couple of months ago about how PayPal and smart phones could be used to bust up the credit card companies’ oligopoly. I wonder how realistic it would be for stores to set up PayPal payment systems at their registers.


  • I can see where the gas station owners are coming from. A similar story was featured on the cover page of my hometown newspaper today. The gas station referenced in the story is a good ‘ol small town station in Medford, MN. As gas prices go up, the profit margin shrinks for station owners (not the oil companies).

    And as for credit card fees…anyone do any selling on Ebay and use PayPal? Everytime someone pays me via PayPal with a credit card I am the one that gets to absorb the fee! So my item sells on Ebay for $7.50 and the PayPal charges me about 40 cents for the transaction!!

  • The key here is consumers ultimately pay the price for convenience, miles and other perks. When fees go up, businesses bear the cost but will pass it on as soon as possible.

    Those few who still pay cash – including the poor – help subsidize the system by paying the same price. None of this is transparent to the consumer.

    Rather than limit fees, why not publish them and add them to the cash price, like we do with sales tax?

  • Matt

    The laughable part about this is that gas stations (and everyone else who accepts plastic) agree to the service charges up front. They realize it is a sales tool (ever turn away from a place that doesn’t take plastic – I do it all the time), it reduces losses from employee theft and robbery, creates efficiency in the transaction and cash counting, etc. If you want lower fees bargain for them, stop taking plastic, or at least negotiate the contract so you can pass them along to customers. Looking to Washington to regulate simple transactions is going to cost you a hell of a lot more than the transaction fees.

  • John

    Just another business turning to the government to help them increase profits.

    The costs involved in credit card transactions exist. If you cap what can be charged for transaction fees, the money will come out of some other pocket … the consumers pocket in the end.

    The credit car companies do have something very close to a monopoly, but nothing short fo breaking them up will cure that.

  • bsimon

    The gas companies’ alternatives are to issue their own credit cards – they certainly used to do so. Some now have alternative payment schemes – I think its Mobil that uses ‘speedpass’. Presumably these alternatives cost the gas station less, adding to their bottom line, rather than sending those dollars to Visa/MC/etc.