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Credit card transaction fees pinch retailers

At the family-owned UPS Store at the Northeast Shopping Center in St. Petersburg, a sign asks customers to please use cash when buying stamps because of the rising cost in fees for processing credit cards.

"If they use a card I'm out 47 cents from the start," said David Farnsworth, who works at the business his wife, Bonnie, started 15 years ago. They have stuck by their decision not to charge extra for stamps as other package stores do and sell them at face value.

"It's a service we provide happily so people can use us for one-stop shopping," Farns­worth said. "If they ship a package, too, we have no problem processing a credit card."

The business pays $850 to $1,100 a month in transaction fees, he said.

Bob Lee's Tire Co. is starting to offer house charge accounts to avoid some of the thousands of dollars' worth of credit and debit card transaction fees it pays.

"As gas gets (higher in price) and it's a 10-cent markup, I'm giving all the money I make in profits to the processing fee," said Todd Murrian. His business pays between $8,500 and $9,500 a month in fees. "That's something you don't factor in (to the price) because you don't know how the customer is paying, so you just take it on the chin. How do you penalize the guy who's not paying with check or cash?"

Legislation in Washington that aims to cap debit card transaction fees at 12 cents per transaction is the subject of heated debate between banks and merchants. It's part of a financial regulation overhaul that has passed Congress, but isn't scheduled to be implemented until summer.

"That would be an incredible savings," said Patricia Hubbard, chief financial officer of the Friendly Fisherman Seafood Restaurant in Madeira Beach. The family-owned business pays $2,000 to $5,000 a month in transaction fees.

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An estimated $20 billion was collected by banks and credit card companies from debit transaction fees last year. The average charge cost merchants 44 cents. If the charge is capped at 12 cents, the banking industry says it will face billions in lost revenue and have to look for other ways to pay for fraud protection, free checking, Internet banking and other services.

"On the outset, it's government price controls and we think that in and of itself constitutes bad public policy," said Peter Garuccio, spokesman for the American Bankers Association. "The concerns that we have raised revolve around how this is going to impact basic free checking accounts, particularly for low-income Americans."

He acknowledged that some of the money collected by the transaction or interchange fees goes to the banks' bottom line as profit. Also, this is a very competitive industry and some banks may find a way to swing free checking should the cap go into place.

With less money collected, banks may have to limit the dollar amount of debit transactions allowed because they have to cover fraudulent charges for the merchant.

"If the transaction is $1,000 and it goes through (even if it's on a stolen card), the merchant is guaranteed payment and the bank is left holding the bag," he said.

Proponents of the fee cap say the billions of dollars that merchants no longer have to pay will allow them to lower consumer prices or hire more employees, but Garuccio points out there's nothing in the law that requires them to do so.

"If I had an additional $25,000 that just fell to my bottom line, I would turn to my servers, some of them have worked for me for 20 years, and say 'Yes, you can take your paid vacation,' '' said Hubbard, who had to ax paid vacations this year as a way to save money.

The rates that banks charge haven't increased much, though the number of customers using plastic instead of cash has grown tremendously.

"When we first opened (in 1978), it was 100 percent cash with a lot of travelers checks," Hubbard said. "In the '80s into the '90s, about 20 percent of our sales was on credit cards. It was a very gradual increase to about 50 percent at the end of the 1990s. The explosion has been in the last five years when people started using their credit cards to excess and people got very comfortable with using debit cards instead of carrying cash and that's when we went quite quickly to 80 percent" of customers using plastic.

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Some merchants pay nothing in transaction fees, because they don't accept credit or debit cards. The Chattaway restaurant, which has been selling burgers at wooden patio tables for more than 50 years, only takes cash.

"We recognize the fact that there is probably an increase in business available, as much as 20 percent from accepting electronic funds," said Peter Becker, who works at the restaurant and is a business adviser. "If you take a card, the fee is about 1.5 to 2 percent (of the sale). If you increase your business by 20 percent, it would certainly pay for that. We are looking into accepting some form of digital payment."

The restaurant has an ATM on-site for deer-in--the-headlights diners who don't notice the cash-only policy until the bill comes.

"During season, a lot of out-of-town people hear about the legendary Chattaway and come down and have a great time and do get a little surprised sometimes. But I believe the home feel sort of makes up for it," Becker said. "We have a considerable amount of local clients who come prepared. I had a table of 17 people with eight separate tickets and every one of them pulled out cash."

Katherine Snow Smith can be reached at (727) 893-8785 or kssmith@sptimes.com.

Credit card transaction fees pinch retailers 03/01/11 [Last modified: Tuesday, March 1, 2011 2:58pm]
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