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Cards bring few rewards

Merchants battle rising credit fees, some of which go unexplained.

By Mark Albright, Times Staff Writer
Published May 23, 2007


The folks who run the Pearl restaurant in Treasure Island don't mind paying a fair share of our penchant for paying with plastic.

"But it drives me crazy we're paying for card rewards points and frequent-flyer miles, " said Catherine Chiadmi, a Pearl co-owner who switched card processors seven times on a promise of lower fees, only to see her restaurant's card bill leap six times.

Every cardholder has developed heartburn over interest rates, fees or the 8-billion mailed pitches a year coaxing people to trade up to a premium card. On the other side of the cash register, retailers complain that "interchange" fees they pay for plastic payment handling more than doubled since 2001 and tripled since 1998.

The latest tally: $36-billion in 2006. Some of it's because more people put stuff on plastic now. But it's also ever-rising rates, more premium cards and a bewildering plethora of extras such as that mountain of card reward points piling up for stuff cardholders may never actually want.

"Interchange fees are the biggest fee you've never heard of, " said Mallory Duncan, chairman of the Merchant Trade Coalition, a lobbying group of retail trade associations battling card-issuing bankers, processors and the companies that run Visa and MasterCard.

Card deals for stores used to be pretty simple. Now the Visa rate card runs on for 25 pages. Many retailers have no written contract with processors and little clue how to analyze billings. An unregulated army of "acquirers" who earn commissions to sign new clients bombard stores so often that Chiadmi gets 60 pitches a year.

For years some retailers declined to honor American Express cards because of the company's higher fees. Now pushback over fees has spread to Visa and MasterCard, which are catching up as their rates hover around 2 percent on average, but get higher with the perks of premium cards. Retailers have been emboldened since an antitrust lawsuit filed by several major chains over debit card fees ended in 2003 with a $2-billion settlement from Visa and $1-billion from MasterCard. Fees have multiplied like minks since then. Rates vary with risk linked to types of card. A corporate card costs more than a swiped card, which costs more than a PIN card. There are dozens of other charges, but you can't tell the hidden charges buried in a card by looking at it. Stores learn when the bill comes.

"Anything over 4 or 5 percent is outrageous, but I've seen up to 7 percent, " said John Kostick, sales director for U.S. Data Capture, a payment-processing firm with a presence in Florida. "In this industry people aren't told what they're paying for because they don't want you to know. A retailer is entitled to full disclosure. Many charges are not broken out. You have to back them out with a calculator."

The card industry says that fees are justified given the march of new payment options and the rising expense to combat security threats posed by thieves.

"It is disingenuous for retailers to just want the lowest price, " said Bill Bucceri, spokesman for the Electronic Funds Transfer Association, which represents companies on the other side of the card transactions. "They want it both ways: low fees and access to more customers without paying for the systems that bring them to their stores."

U.S. retailers face some of the highest card fees in the world, largely because government intervention lowered them elsewhere.

It's an uphill battle here. So far, retailers have told their story to a couple of congressional committees. Retailers have 50 antitrust suits over fees pending against Visa or MasterCard. Florida is one of two dozen states where retail trade groups mounted an ill-fated attempt to prod the Legislature to stop card companies from charging fees on sales taxes.

Florida retailers last year paid $180-million in extra card fees for state taxes slapped on their transactions.

Card issuers say a fee cap doesn't mean retailers will lower prices.

True. But the actual value of a reward point to a cardholder is somewhere between "not much" and "that depends." Yet as long as card fees keep going up, it's a lead-pipe cinch that retailers will build all of them into higher prices.

Mark Albright can be reached at or 727 893-8252.

[Last modified May 22, 2007, 22:51:07]

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