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The
merchant pays a negotiated fee -- typically 1-3%
for larger merchants and 3-6% for smaller
merchants -- to process credit payments. Merchants
who accept credit card payments typically sign a
"merchant agreement," promising that they won't
offer different prices for card and non-card
transactions. In some countries the fee may be
significantly more. If customers were responsible
for this fee, it would often discourage credit
card usage. Some critics have observed that this
results in what is effectively a hidden tax on all
transactions conducted by merchants who accept
credit cards since they must build the cost of
transaction fees into their overall business
expense. The end result is that other customers
are essentially subsidizing credit card holder
purchases. The cost of the convenience enjoyed by
card holders and the profits taken from
transaction fees by the card industry (which has
come to rely increasingly on this revenue stream
over the years) is partially offloaded onto the
backs of the cash customer. Critics go on to say
that further compounding the issue is the fact
that the customers most likely to pay in cash are
the least able to afford the additional expense
(card holders are more likely to be affluent,
non-card holders less so).
A
counterargument is that there are also costs to
the merchant in other forms of payment. For cash
payments these include frequent trips to the bank
or use of an armored delivery service, theft, and
employee error, such that cash is actually not
cheaper for the merchant than credit cards. Some
businesses may offer a discount for cash-paying
customers.
Some
companies offer incentives or bonus coupons for
using cash, such as
Canadian Tire Money.
Australia
is currently acting to reduce this by allowing
merchants to apply surcharges for credit card
users. In the United Kingdom, merchants won the
right through
The Credit Cards (Price
Discrimination) Order 1990
to charge customers different prices according to
the payment method, but few merchants do so (the
most notable exceptions being
budget airlines
and travel agents). The United Kingdom is the
world's most credit-card-intensive country, with
67 million credit cards for a population of 59
million people.
There
also exists an economic argument that credit card
use increases the "velocity" of money in an
economy. The result, according to the
quantity theory of money,
is an effective increase in the
money supply,
as more money is flowing through the economy at a
given time. Although there is many a sad story of
credit card abuse, the trend is increasing use,
with some predicting a cashless society in the not
so distant future.
There
is some controversy about credit card usage in
recent years. Credit card
debt
has soared, particularly among young people. Since
the late 1990s,
lawmakers,
consumer advocacy groups,
college officials and other higher education
affiliates have become increasingly concerned
about the rising use of credit cards among college
students. The major credit card companies have
been accused of targeting a younger audience, in
particular
college
students, many of whom are already in debt with
college
tuition
fees and college
loans
and who typically are less experienced at managing
their own finances. A recent study by United
College Marketing Services has shown that student
credit lines have increased to over $6,000. Credit
card usage has tripled since 2001 amongst
teenagers as well. Since eighteen year-olds in
many countries and most U.S. states are eligible
for a card without
parental consent
or employment, the likelihood of increased
balances, unwise use of credit and damaged
credit scores
increases.
Another controversial area is the
universal default
feature of many North American credit card
contracts. When a cardholder is late paying a
particular credit card issuer, that card's
interest rate can be raised, often considerably.
Given this circumstance with one credit card,
universal default allows other card issuers to
raise the cardholder's interest rates on other
accounts, even if those other accounts are not in
default.
In the
United States, some have called for
Congress
to enact additional regulations on the industry;
to expand the disclosure box clearly disclosing
rate hikes, use plain language, incorporate
balance payoff disclosures, and also to outlaw
universal default.
Opponents - usually of a
conservative
or
libertarian
orientation - of such regulation argue that
customers must become more proactive and
self-responsible in evaluating and negotiating
terms with credit offerers. The nation's
influential top three bank card issuers, who are
among the top fifty corporate contributors to
political campaigns, successfully opposed it.
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