This Might Save Credit Card Users Hundreds per Year

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  • Merchants pay fees when you swipe your credit card, and these fees are passed on to consumers.
  • Credit card processing fees cost around $137.8 billion annually.
  • A new law could potentially change the rules to encourage competition and reduce fees.

If you're using credit cards, some pending legislation could potentially help you out.

Did you know that every time you use your credit card, the merchant you are paying is charged a hefty fee? The cost of the card processing fee is typically around 2% to 3% -- and businesses typically pass this expense onto consumers. This means the purchases you make are all more expensive because of it.

A big part of the reason this fee is so high is because Visa and Mastercard collectively control so much of the credit card processing market. These two giant lenders set processing fee rates for every single card within their bank network, which means there's no competition. And merchants either have to accept every Visa or Mastercard and pay the fees charged or will lose access to all of the cards in the banks networks.

A new proposed law, the Credit Card Competition Act, would make some big changes to encourage the development of a freer market. This could reduce fees and possibly save consumers hundreds of dollars every year. Here's how.

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Credit card swipe fees are costing you a fortune

First things first -- it's helpful to understand just how much credit card swipe fees end up costing merchants each year because the numbers are staggering.

Visa and Mastercard together collected $77 billion in credit card fees from merchants in 2021 alone, and the total amount of card processing fees collected comes in at around $137.8 billion annually. Some merchants end up losing as much as 17% to 19% of their annual profits to these fees (with profits being the money they collect from sales minus the cost of providing goods and services).

Households end up bearing the brunt of this cost, and research revealed they ended up costing the average family more than $900 in just 2021 alone.

How the Credit Card Competition Act could change things

The Credit Card Competition Act aims to increase the competition in the credit card processing market. It would do this by requiring around 30 large banks to allow the use of two networks on their credit cards -- one of which is not a Visa or Mastercard network.

With the existence of two networks for processing transactions, merchants would have a choice of which to use -- and would likely select the one offering better service at more affordable prices. Since card processors would have to compete rather than just having a monopoly, this would prompt them to reduce fees and offer better service.

This would not be an unprecedented requirement, since debit cards are required to carry two networks. And the change is expected to save around $11 billion in swipe fees. That's a pretty big sum of money, and the savings could be passed on to consumers.

The Credit Card Competition Act has bipartisan support, but there are many opponents in a powerful industry with lots of cash to throw around (much of it collected from swipe fees). These opponents argue that the change could reduce the availability of rewards cards and they are actively campaigning against the bill.

So, it remains unclear if it will ever become law. But consumers should watch for news and should consider contacting their representatives if they support a change to the law to increase competition in the card-processing industry.

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