AGAIN THE LAW OF SUPPLY AND DEMAND!

I patiently explained the Law of Supply and Demand in a blog  on December 28, 2010 in relation to the possibility of an admission fee for The Taste of Chicago. This blog deals with the fees that the credit card issuers charge businesses, but the basic premise is still the Law of Supply and Demand. Credit card companies (through banks) supply a service that businesses need and they have a right to charge a fee for providing that service, but the Federal Reserve is sticking their nose in about fees and the battle is heating up.

According to the Associated Press, ”Currently, the fees typically range between 1 and 2 percent of each purchase, averaging 44 cents. The Fed has proposed capping that at 12 cents, though smaller banks could charge more. Bankers want lawmakers to delay the change in hopes that it will eventually be killed or toned down.” I agree with the banks that the Fed has no business stepping in. If a business does not like the fee they are being charged for a service, then stop using that service! Don’t ask the Federal Government to step in and ask the service to lower their rates.


I have written a number of blogs in support of credit card companies and have given the history of the industry. Originally, the ability to not pay immediately for something resulted in a bill at the end of each month that a person had to pay off immediately. It was a charge account. That has evolved into credit accounts where one has the ability to pay off the bill over a period of time.


If a company wants to provide their own billing system, known as a “House Account,” there is no law against that. But are they willing to risk that the customer will pay their bill at the end of the month? Are they prepared to deal with fraudulent use of the House Account? Can they handle that fraud costs credit card companies more than $500 million a year? How about the cost of floating the money to customers? Average credit card debt per household with credit card debt is $15,788. The Feds themselves estimate total U.S. consumer debt at $2.40 trillion, as of June 2010 (Source: Federal Reserve's G.19 report on consumer credit, November 2010) Does every Mom and Pop store in America have the capability of essentially loaning money to their customers and hoping they will get paid back? No! That is why there are bank-issued credit and charge cards.

Plus many credit cards offer all sorts of reward programs when a person spends. Can a local store offer that option at the level a bank can? Probably not.

What about these statistics?


• According to Fitch Ratings, the number of credit card defaults hit 11.37 percent, the highest level since a record 11.52 percent in September 2009. (Source: Associated Press, March 2010)


• In the last 12 months, 15 percent of American adults, or nearly 34 million people, have been late making a credit card payment and eight percent (18 million people) have missed a payment entirely. (Source: National Foundation for Credit Counseling, 2009 Financial Literacy Survey, April 2009)


• 26 percent of Americans, or more than 58 million adults, admit to not paying all of their bills on time. Among African-Americans, this number is at 51 percent. (Source: National Foundation for Credit Counseling, 2009 Financial Literacy Survey, April 2009)

Nobody forces a business to take a credit card in exchange for goods and services; the business does it for the convenience of their customers. Don’t like the fees the banks charge? Then don’t offer to accept credit cards. But since customers will demand it, businesses will have to supply it; just don’t go crying to the Feds for a bailout.