Beware at the pump

It’s the first rule of spin: If you don’t like where a conversation is heading, change the subject. It’s a lesson that a few litigious merchants, some gas stations and a few oil companies have clearly taken to heart.

With gas prices hitting record highs in the aftermath of the recent hurricanes, certain fuel industry advocates have found a clever misdirection strategy: Shift blame for their soaring gas prices on to payment card companies. To deflect attention from their industry’s record profits, they are advancing the argument that when consumers choose to pay for gas with plastic it somehow drives up costs at the pump.

The problem is that their argument is patently false. Despite what the oil industry and the merchants involved in these lawsuits would lead you to believe, the rate gas stations pay for card acceptance has not increased since the Hurricanes, even as gas prices have gone through the roof. (In fact, according to statistics compiled by USA Today, the price of a gallon of gas has more than doubled, from $1.40 in 2002 to $2.90 on average this year.)

The payment system works this way: When consumers choose to use their debit or credit cards, the merchant pays a small transaction fee based on a percentage of the total sale. On sales at gas stations, this fee averages about 1.6 percent. Merchants, not consumers, pay the cost of card acceptance because they benefit from the value and services they receive from the global payments system, to keep the infrastructure strong and secure and support critical fraud detection technologies. But that’s exactly what this misleading public relations attack is trying to change. In fact, it is part of a larger campaign being advanced by a small group of merchants and their trade association representatives in Washington working to shift their costs of doing business onto consumers.

Over the past year, these groups have filed lawsuits and lobbied Congress seeking to radically alter the electronic payments industry by imposing price controls and securing the right to charge consumers a check-out fee if they pay with plastic.

As a first step, some merchants want to impose price controls. That might benefit the merchants’ bottom line in the short term, but it won’t eliminate the basic costs of keeping the electronic payments system running. What it would do is push this cost onto the backs of consumers, who could see their card fees go up and their rewards program benefits go down.

Even more ominous is the attempt by a few merchants to impose check-out fees, which would force any consumer who chooses to pay with plastic to fork over an additional fee on top of their purchase. A $20 bag of groceries? That would be $21.50 or some similar markup under these merchants’ plans. This practice is so grossly anti-consumer that it is illegal in many states and explicitly against Visa’s rules everywhere.

Taken together, the effort to set price controls and impose check-out fees amounts to a serious threat to consumers. Bank cards are one of the most important innovations of the modern economy. They allow millions to travel virtually anywhere in the world and conduct transactions with speed, security and convenience. Merchants benefit with faster, more efficient sales, larger tickets on average and simpler bookkeeping. It’s a system that has helped our economy thrive.

Now, these lawsuits and lobbying campaigns are putting that progress in harm’s way, inviting a host of unintended consequences. We can predict some of the potential outcomes by looking at Australia, where price controls and the right to impose check-out fees have already been enacted.

The results are grim. Nearly half of Australia’s merchants have chosen to hit customers with check-out fees or are considering doing so. Rewards programs have been diminished. APRs have gone up. Ironically, some merchants are actually paying more now. That is because the regulation exempted American Express and Diner’s Club, so more banks are issuing that brand which carries with it higher transaction fees for merchants. All of this has amounted to less consumer choice and higher prices for everyone.

There is nothing wise about mimicking failure. The fact is that today’s electronic payments system works for all involved. That’s why millions of customers choose to use their cards everyday and millions of merchants choose to accept them. For those who feel otherwise, they have plenty of choices. Merchants, including gas station owners, can choose whether to accept debit or credit cards and they can try to steer customers by offering discounts for cash purchases. And, of course, they can simply choose not to accept plastic at all.

What they cannot do now — and must not be allowed to do in the future — is to continue enjoying all the benefits that come with accepting cards, while shifting their costs of doing business to consumers.

The current market-based electronic-payments system works. It has led to the development of innovative products and services that benefit customers and merchants alike. Undermining that system with price controls and check-out fees would put that all at risk. That is not in anybody’s best interest. And that’s not spin — it’s just common sense.

William M. Sheedy is executive vice president of Visa USA.