Nobody seems happy with the US credit-card industry these days -- not the consumers who use the cards, the retailers and merchants who accept them, or the lawmakers who oversee the industry.
The merchants accuse the industry of illegally fixing the processing fees its charges them and they are not taking it any more. A growing number have filed suit against the industry's two biggest associations, alleging violations of US antitrust law.
Consumers, meanwhile, accuse the industry of larding its contracts with fine-print "gotcha clauses" that trigger rate increases and penalties -- and they're not taking it anymore either. A growing number are complaining to the Better Business Bureau, where credit-card gripes are now the third-largest source of complaints, and to representatives in Congress.
And those lawmakers are beginning to stir. A flurry of bills have been introduced this year in the US Congress to protect consumers from what critics characterise as industry abuses, including one called The Loan Shark Prevention Act. Another, the Credit Card Accountability Responsibility Disclosure Act of 2005, sounds less threatening to the industry, but its author, Sen. Chris Dodd (D-Conn.), has called credit cards "nothing less than wallet-sized predatory loans."
"I think the credit-card industry is reaching a tipping point," said Travis Plunkett, the legislative director at the Consumer Federation of America, a Washington, D.C.-based group that has been inundated with complaints from consumers.
"People are just fed up with the approach that the large credit-card issuers have taken over the past five years. They're fed up with an increasing number of traps and tricks. They're tired of being hit with a fee every time they blink."
This month, the industry's PR problems deepened when Consumer Reports, a monthly magazine published by Consumers Union -- an independent, non-profit product testing and information service -- blasted the industry's policies in a story headlined: "Credit Cards: They really are out to get you."
"These bad practices start with the high-rate cards and then they migrate to the cards that everyone else holds and then they become very intense in the marketplace," said Gail Hillebrand, a senior attorney with Consumers Union.
The credit-card industry is taking note. At a card industry conference in Memphis last month, Duncan MacDonald, the former general counsel at Citibank Cards who is now a consultant, sounded the tocsin, warning the industry heavyweights assembled there that they were headed into a "perfect storm."
"You've got consumers and merchants revolting," he said. "They're the two customers of this industry. That's not good."
The industry's response to this uprising has ranged from the modest to the monumental.
Citigroup Inc the No 3 US credit-card issuer by purchase volume, recently introduced a card called Simplicity, which promises "no late fees" -- provided the card is used at least once a month.
The 1,400 banks that own MasterCard, the world's No 2 credit-card association, decided earlier this year to sell shares to the public in a move that will reshape the landscape. Visa, the world's No 1 credit-card association, is widely expected to follow suit.
The hope is that by opening up their ownership to members of the public, the associations will have a bullet-proof answer to claims contained in dozens of federal lawsuits filed against them that they are an illegal cartel of competitors setting prices in concert -- in violation of US antitrust law.
But the credit-card associations are not rolling over. They continue to defend the fees they charge merchants, pointing out that somebody has to pay for the payment systems and finance the float that consumers enjoy when they use credit cards.
And they say that consumers who don't like the interest rates, late and over-the-limit fees that one card charges can always just take their business to another -- or simply use a debit card, a store card or even a check.
"Consumers have alternatives," said Jeffrey Green, the editor of Cards & Payments Magazine, which tracks the industry.
As the lawsuits multiply and drag on, some see opportunity through competition.
DebitMan Cards Inc, a privately held company based outside San Francisco, has created a merchant-oriented card that charges fees of just 15 cents a transaction. That is far lower than the 23 to 50 cents that the bank-run debit systems charge and well below the interchange fees that the banks charge on credit-card transactions, which often are 2 percent of the gross transaction -- plus transaction fee.
The payment processing arm of Ohio-based Fifth Third Bancorp has signed on as processor and a number of retailers that process via Fifth-Third, including CVS, Kroger and Best Buy now accept the cards.
Getting merchants to issue the cards has proven to be tough.
"It's a chicken and egg thing," R. Scott Hatfield, its president and chief operating officer, said.
Hatfield believes the merchants who are spending cash fighting the credit-card companies in court are wasting money.
"They'd be better served if they just issued cards on a competitive network rather than paying lawyers and trying to lower interchange rates," he said.
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