Government Accountability Office Sees Little to Gain from Credit Card Processing Caps

November 24, 2009
By: Joe Taylor

Cutting credit card merchant processing fees may sound good to retailers and to lawmakers, but government analysts warn that a cap on transaction costs could carry some negative consequences. In a report released Thursday, the Government Accountability Office advised banking regulators that reduced interchange fees would likely fail to reduce retail prices--even for consumers who pay cash. Although companies of all sizes accuse merchant processing banks of milking transactions for profits, the GAO report reminds lawmakers that interchange fees absorb essential costs for most businesses.

For instance, the GAO report called out credit card processing fees as a buffer for both banks and businesses against defaulted accounts. Small businesses especially benefit from the reduced risk of relying on credit card payments instead of offering their own terms accounts to risky customers. Enforcing artificial limits on interchange fees could also create a false sense of savings, according to the GAO. The report's authors warned that costs currently covered by merchant account fees might shift to credit card holders as service charges with little to no downward impact on retail prices.

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About the Author

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.