Sunday, April 12, 2009 President Jonathan E. Johnson III overlooks several important facts regarding credit card interchange fees (“Retailers, consumers squeezed,” Opinion, Wednesday).

Much of the $48 billion in interchange fees paid to credit card companies ends back in consumers’ pockets in the form of credit card rewards. Frequent-flier miles, redeemable bonus points and cash-back programs are all financed largely by interchange fees. Consumers can earn rewards totaling 1 percent or more of the amount of purchases made on a credit card.

If interchange fees are as abusive as Mr. Johnson claims they are, why does continue to accept them? The answer is simple: Consumers like the convenience and security of credit cards, and retailers make more than enough from credit cards through increased sales to pay for interchange fees. Retailers unhappy with interchange fees always have the option not to accept credit cards. (Costco Wholesale Corp., for instance, does not accept MasterCard or Visa credit cards.)

Government price controls on interchange fees will shrink rewards programs and force increases in annual cardholder fees - as happened in Australia in 2001, when the Reserve Bank of Australia capped interchange fees. Congress should heed Australia’s experience before interfering with the payments marketplace.


Information policy analyst

Competitive Enterprise Institute


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