Another Blow To Credit Card Users. Did You Know That…?

I didn’t know anything about this issue.

Watching Jean Chatzky on television Friday, I learned that credit card users will suffer yet another financial blow starting as early as next week (February 2013).

Under new credit card regulations, merchants who take credit card payments will be able to charge credit card users more than what other customers will pay using cash or their debit card.  As Ms. Chatzky pointed out, merchants will be slow in adopting new policies and procedures as this comes into effect, but over time it is expected that merchants will add a fee or surcharge to the consumer’s total cost of their purchase, if the consumer uses a classic credit card for their payment.  Credit card users will pay more than other customers paying cash or using their debit card.  Gas stations have worked under this scenario for years.

The end result is that customers like myself who want to protect themselves from identity theft and other unlawful access to their finances, and minimize their exposure to global credit thieves by using a classic credit card (versus a debit card), will pay a premium for the luxury of using credit cards for their purchases.

It is widely known that criminals and identity thieves around the world target individuals and businesses to gain unlawful access to card information.  Much of this crime is targeted against Americans by individuals and groups outside the United States.  The primary target these days continues to be debit cards because they give the criminal instant access to funds within linked bank accounts.  Most often when there is a breech, the funds are gone from the linked bank account before the victim even realizes their account has been violated.  The victim then has to work with their bank to get their funds returned to their bank account.

Conversely, as I have been recommending for years, individuals can avoid the “debit card rush”, and continue to use their classic credit card – Mastercards, Visa, American Express, Discover…  These traditional credit cards are not linked to bank accounts, and do not allow instant access to funds.  Charges are added to the account as they are incurred, and once an unauthorized charge is identified by a cardholder, the charge can be disputed and new cards issued.  The cardholder is out no funds.

There is a cost difference for merchants.  Credit card companies typically charge from 3 to 6 percent on each purchase for processing a credit card charge, a cost paid by the merchant / retailer.  If, however, the customer uses a debit card, the charge for processing the transaction is a fraction of the fees, at times as little as $.25 per transaction.  Hence there is a financial incentive for merchants to encourage debit card use versus credit card use.

On the larger scale, new fees added to credit card users is directed to drive more consumers towards debit cards or paying in cash.  Both come with increased risks to consumers, and will likely drive an increase in crime.  For the debit card users, more debit card holders and users will mean more cards and accounts open for targeting worldwide.  I trust the thieves targeting these debit cards are smiling as this regulation goes into effect, as the universe of available cards and accounts to target will only increase for them.  As for encouraging more consumers to use “cash”, there will be an increased risk and occurrence of personal robberies for the cash they are carrying.

At some point the focus needs to be shifted away from how financial institutions (and now merchants) can save money and increase profits, to how laws, regulations and policies can be designed and implemented to truly protect the citizens without continually passing along fees and costs to the consumers (whose same funds are maintained within the very financial institutions imposing the costs).  Perhaps someday state and federal oversight bodies will consult qualified individuals, experienced in these areas, with no agendas or special interests, to help them look at situations as a whole, identify the risks and benefits objectively, and help ensure self-serving changes do not increase risk or cause harm to consumers in other areas.  Contrary to what typically happens every day within government, one can always hope….