- The Washington Times - Monday, April 13, 2009

ANALYSIS/OPINION:

I am shocked that Overstock.com President Jonathan E. Johnson III is as unaware of how credit cards work as he appears to be.

In his recent Op-Ed column (“Retailers, consumers squeezed,” Opinion, Wednesday) Mr. Johnson suggests - absurdly - that credit unions and other financial institutions would want to lose a dollar to make a penny. The average credit card charge-off rates were nearly 8 percent in January 2009. It is ludicrous to think that any financial institution would want to write off that amount in order to take in an average of 1.4 percent in interchange revenue. When a merchant accepts Visa, MasterCard or American Express, that merchant will get paid, even if the customer defaults. That's a bargain by any measure.

Today, avoiding the risk of default is a significant consideration for businesses - and well worth the penny or so on the dollar a merchant pays for this benefit. Private-label cards, such as Target Corp.'s, tend to have even higher charge-off rates than do general-purpose cards. Target reported charge-off rates of 12 percent in January. A company like Overstock.com that doesn't run its own card program is protected from the pain Target and other private-label card programs feel during economic downturns.

The revenue provided by interchange fees helps offset the costs of data breaches, which often are the product of insufficient security precautions taken by merchants. Unfortunately, merchants and retailers are not held to the same standard in protecting personal and sensitive data as are financial institutions. Indeed, they are virtually unregulated in this regard. It is ironic that the merchants are calling for a reduction in the same interchange fees that pay for their mishandling of sensitive financial information.

Interchange fees give small financial institutions the ability to offer member card services. Credit unions are not-for-profit, cooperative institutions. Without these fees, many of our institutions would not be able to help cover the cost of providing these important benefits. Capping interchange fees essentially would limit a credit union's ability to offer card services and would lead to fewer and fewer alternatives for consumers in the marketplace.

Merchants that accept debit and credit cards get more sales and higher profits - and get paid even when the customer doesn't. It's only fair that merchants pay for these benefits.

FRED R. BECKER JR.

President

National Association of Federal Credit Unions

Arlington

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