Plastic Nation

The commercials are unavoidable. Cash is passé they scream, checks are old school. Anybody not swiping a card at the register is holding up the line…check that, not just the line, but dragging down the entire economy, slowing world commerce – hell, dragging down society!

Not using a card for every transaction? Un-American! I can almost hear the voice of Lee Greenwood every time a piece of plastic is unleashed from someone’s wallet.

They’re making it easier all the time. Soon, they’ll even have our credit information embedded in our phones and we won’t even need that bothersome plastic to spend our money.

Use your card for even the smallest of purchases they urge – a cup of coffee, bottled water, gum – and get rid of all that bothersome paper and change in your pockets. But the ads make retailers cringe.

More and more people are approaching the register with only a soda, or worse, a newspaper, and whipping out plastic. In 2003, Americans made the majority of their purchases with cards for the first time in history, and with prices at the pump continually climbing it’s estimated that almost 70 percent of gas purchases are made with credit cards. The National Association of Convenience Stores said credit and debit card interchange fees alone cost convenience stores $5.4 billion in 2005, or an average of $38,383 per store.

And with so few people carrying cash today, merchants almost have to break down and accept it.

Big deal, you say. They still make money. But what most don’t realize is the rate the companies charge for processing the transaction wipes out a significant slice of the thin profit the retailer makes on the product. And how do you suppose they recover it? By charging more for products. Studies estimate the average American spends $300 more per year for merchandise because of this added cost, a cost passed on not only to those using plastic, but to all those paying with cash and check as well.

Big chains like Wal-Mart, Target, and McDonald’s can negotiate with the credit card companies to get a better rate, but small businesses lack the clout and purchasing power, putting them at an even greater disadvantage than they already face in taking on the giant price-slashers.

There was a day when these interchange rates were at least justifiable, when human labor had to be used to process the transactions, tabulate totals, and handle the paperwork. But today the rates are higher and the cost of processing the transactions far lower due to computer technology and internet-based processing. The practice has become so abusive that a Senate panel is investigating it (though certainly not with the vigor of steroid use in baseball or Spygate), and in January Visa and MasterCard settled a suit brought by the state of West Virginia on behalf of their consumers. The companies agreed to set aside $12 million for sales tax relief to compensate for the increased price consumers paid for merchandise.

It was determined the companies were charging retailers the same fee for processing both credit and debit cards, thought the risks and costs to the issuer associated with processing debit cards were higher than for debit cards.

Mallory Duncan of the National Retail Federation testified before the Senate panel about how tightly the wool has been pulled over the eyes of consumers.

“The card associations make every effort to ensure that card holders remain unaware of the interchange fee costs their usage of cards imposes…Consumers then assume that using a card is free (or even a benefit because they get some type of reward) even though it makes all of us pay more for virtually everything we buy.”

Everyone knows credit cards are a debt trap, it’s personal finance 101. Yet almost all of us carry them, and use them regularly. We’ve experienced the pain of finding a $30 late payment fee on our statement (companies collect $12 billion worth of these annually), or finding that the payment due date is different this month than last, or falls on a Sunday.

Now we’re falling for their newest mind games, buying into their ads telling us that life is just plain easier when we use plastic. And some things are easier, like falling into debt, or bankruptcy.

Wait, that’s not quite right. Bankruptcy is not easy, and it shouldn’t be. But as doling out credit became easier to do in the last decade and predatory lending became more prevalent (witness move-in day at a college campus, where 18-year-olds are given $1,500 lines of credit – and a T-shirt – in their first day out of the house), pushing bankruptcy filings to startling rates, our leaders in Congress and the White House finally stood up and said enough’s enough.

It was time to do something, and in 2005 they finally did…by deciding to make it much more difficult for those who fell prey to the predatory lending to file for bankruptcy protection. Yes, with credit card companies reeling in record profits it was time to send a message to them, that message being that the federal government will always be there to protect them from their own ill-advised lending decisions. Even when half of all bankruptcies are traced to a more serious problem Congress chooses to avoid, medical bills.

Thank you, Washington.

Through late fees, service fees, finance charges, bankruptcy fees, and interchange fees we’re paying tens of billions of dollars every year to credit card companies for the privilege of spending our money. All money spent to produce…nothing, money supporting an industry that doesn’t support high-wage, good-benefits jobs, but rather sends them oversees to sit in call centers.

The end result is a populace in which the average American has negative savings and spends further beyond their means each year.

Next time you want to complain about the $10 minimum purchase the convenience store requests of you to process the card, know you’re being a jerk, and consider carrying cash again – it’ll save you money (even if the commercial says it’s not cool).