"Credit where it isn't due"
The truth behind the gimmickry of 'Small Business Saturday'
A story on the front page of the Times Union on Sunday, Nov. 25, had the headline "Stores' strategies for getting a grip on your green." It provided shoppers with vital information about retail marketing practices on the day after "Small Business Saturday," an invention of the fertile minds at American Express. This newest marketing day, sandwiched between Black Friday and Cyber Monday, needs some explanation. An appropriate headline might be: "American Express' strategy for getting a grip on your and the stores' green."
The dirty little secret, and it is both a secret and dirty to consumers and small stores, is that American Express leads the pack in the credit card industry practice of imposing a hidden tax called a "swipe fee," on all stores and shoppers, including those that pay with checks, cash or even EBT cards.
The price of everything stores sell has gone up considerably because of this tax. Part of the swipe fee tax, is used to lavish rewards on the wealthiest among us — yet another perk for the 1 percent.
But most of the tax goes to the credit card companies, especially American Express, whose C.E.O. Ken Chenault, recently came to the White House for lunch, barely a month after his company was fined $85 million by the new Consumer Financial Protection Bureau for illegal credit card practices. The CFPB is an agency created by the Dodd-Frank Act, one of President Barack Obama's signal achievements in his first term.
In 2010, U.S. merchants paid roughly $42 billion in credit card swipe fees. These charges were over and above the more than $100 billion that credit cardholders paid card companies in interest, at rates that averaged just under 15 percent. The same companies, including American Express, pay less than 1 percent for the funds consumers deposit in their savings and checking accounts. The actual cost of providing the convenience of these plastic and other electronic credit payments to stores and consumers was a small fraction of the $42 billion charged to the stores. The balance, roughly $35 billion, went to the credit card companies, banks and affluent cardholders like me who carry "rewards cards" such as American Express, Gold, Platinum and Black cards.
That last one, dubbed the "Centurion Card," provides cardholders with free upgrades when renting a Ferrari and discounts when purchasing a Jaguar or Tesla automobile. In the last several years, I have travelled for free in business class or first class to Thailand, India, New Zealand, South Africa and Vietnam with the rewards lavished on me by credit card companies.
The stores in which I shop, and shoppers of more modest means, pay for these junkets because stores generally can't charge different prices based on the way shoppers tender payment. With minor exceptions, surcharging credit card transactions is prohibited by the card companies. In some states, such as New York and California, it is also prohibited by law. Surcharging is also messy, impractical and alienates credit card customers, even in the rare situation where it is permitted.
American Express' swipe fees are far and away the highest and even higher and more burdensome for small businesses. That is why many small stores refuse to accept American Express cards and why Small Business Saturday is such a cynical and deceptive effort to court favor with small local retailers and send a false message that American Express is their friend.
Of course, there is a faster, safer form of plastic and electronic payment which also is much cheaper for shoppers and stores — the debit card. For many years, Visa and MasterCard deceived stores into thinking that their debit cards were credit cards and charged stores the same high price for debit as for credit.
After 15 years of battling in court, at the Federal Reserve and on Capitol Hill, a coalition of stores forced credit card companies to separate credit from debit, distinctly label debit cards as such and charge stores much lower prices for debit transactions. Visa and MasterCard changed their abusive and anticompetitive practices because the courts and Congress forced them to. But American Express has found and is exploiting a loophole in the Dodd-Frank Act. It recently unveiled a new debit card linked to an online checking account that will impose high credit card style swipe fees on stores, for debit transactions when neither they nor the shopper is getting any "credit" from American Express.
Now that you know what's really behind Small Business Saturday, you don't need to wait another year to express support for the wonderful small and locally owned stores in your community.
During this holiday season, and throughout the year, shopping at such stores keeps much more of your spending dollar where you live and work.
I intend to shop locally. And when I do, I will pay the stores in my community with something other than a high-priced credit card that rewards the credit card companies and me to the detriment of the stores and my fellow shoppers.
"Credit where it isn't due"