Despite high unemployment and an economy that just can’t seem to get out of second gear, credit card companies have been seeing their numbers get better each month. As I mentioned previously, late payments have been decreasing since early spring, and charge-offs for bad loans have been falling, as well.
Credit card companies and banks have both felt the effects of these tailwinds, and banks, in particular, are expected to see these profits offset some of their losses in other types of loan activity. Issuers are feeling so confident, in fact, that credit card interest rates have been rising steadily, particularly for those with scanty or dodgy credit histories. Even rates on accounts with stellar credit have risen nearly one-third of one percentage point over the last year, padding the issuers’ bottom lines even more.
Lawsuit settlement may crimp profits for all
These heady good times may be coming to an end, however. The Wall Street Journal reports that merchants have long been unhappy with credit card giants MasterCard
Credit card companies aren’t the only ones being sued, and banks like Bank of America
The trial is set for September, and most analysts predict that a settlement will occur before the trial date. The expected outcome is that merchants will be able to set surcharges on purchases where the customer chooses to use a credit card for payment. Because both Discover and American Express already allow merchants to surcharge as long as they do so for every credit card, it looks likely that any such purchase will soon have an extra fee attached.
Do merchants really believe that consumers will simply pony up an extra charge at checkout with no argument? Perhaps, but their motivation for the suit also seems to be to pressure Visa and MasterCard to lower their swipe fees. The logic goes that revenue is dependent upon transaction frequency, so the card issuers won’t put that recipe at risk just to continue with the higher fee schedule.
The banks keep the fees, however, so dropping the fees may not be as cut and dried as the plaintiffs believe. That battle may take some time to win if, in fact, the merchants prevail. Meantime, consumers may get very angry indeed. There are so many different ways to pay for goods these days -- including good old cash -- that paying an extra charge won’t be accepted easily. Merchants may find customers stalking out of their stores in a huff, or simply foregoing those spur-of-the-moment purchases of which credit cards are so supportive.
I predict losers on both sides of the fence here, with incensed consumers right smack in the middle. As shoppers turn to alternative ways to pay, I see eBay's
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Fool contributor Amanda Alix owns no shares in the companies mentioned above. The Motley Fool owns shares of American Express, MasterCard, Bank of America, Citigroup, and JP Morgan Chase. The Fool owns shares of and has created a covered strangle position in Wells Fargo. Motley Fool newsletter services have recommended buying shares of Visa, Wells Fargo, and eBay. Motley Fool newsletter services have recommended creating a write covered strangle position in American Express. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.