MasterCard: 7-Eleven 'Misleading' Customers on Credit Card Fees

[The Straight Story]

MasterCard: 7-Eleven 'Misleading' Customers on Credit Card Fees

By Barbara Grondin Francella

September 29, 2009 - DALLAS -- MasterCard Worldwide fired back against convenience store chain 7-Eleven Inc. yesterday, stating the c-store operator's recent consumer petitioning against 'unfair" credit card fees was "misleading" to customers, who actually believe merchants should pay the costs of accepting credit and debit cards.
...

7-Eleven franchisees and store operators collected nearly 1.7 million signatures in the "Stop Unfair Credit Card Fees" petition drive, a figure the company believes is the largest number of signatures collected for a public policy issue on record.

Thousands of 7-Eleven franchisees across the country asked customers to support their neighborhood stores by signing petitions calling for Congress to pass legislation that prohibits credit card networks and card-issuing banks from charging unfair transaction fees. The petition drive ran from June 22 through Aug. 10, at store counters coast to coast, the company reported.
...

Credit card companies typically levy more than $2 in fees for every $100 consumers charge at American businesses, 7-Eleven said. Convenience stores generally have smaller purchases, which typically result in much higher rates.

For example, as a result of the recently published rate hike by MasterCard, if a customer uses a MasterCard Pin Debit card to make a $1 purchase at a convenience store, the charge to the merchant would be 20 cents, or 20 percent of the transaction -- nearly twice the current rate, according to 7-Eleven.

But MasterCard President, U.S. Markets Chris McWilton said: "It's surprising that 7-Eleven, a company that prides itself on convenience, would mount such an aggressive campaign against the most convenient form of payment. Even 7-Eleven itself has said many times that accepting payment cards increases their sales, enhances safety and convenience for store operators, and improves customer satisfaction."

http://www.csnews.com/csn/news/article_display.jsp?vnu_content_id=1004017032

[northzax]

1. if 7-11 thinks MasterCard's fees are exorbitant

then they should stop accepting MC. why is the Federal Government involved?

[The Straight Story]

2. Regulating of interstate commerce (nt)

[Romulox]

3. Because the government has an essential role in regulating financial products.

Especially inasmuch as the entire industry is essentially backstopped with taxpayer money.

[northzax]

6. this is correct

but it's also irrelevant in this circumstance. this is a voluntary contractual relationship between two multibillion dollar a year companies. if 7-11 wants better rates, I am fairly certain that they have crack attorneys to negotiate them with MasterCard. how many MC transactions a day do you think 7-11 runs internationally? a couple million? they certainly don't HAVE to accept MC's terms, surely taking VISA and AMEX alone would be sufficient for 7-11, and a blow to MC. (yes, contrary to belief, MC and VISA are divisible)

[Romulox]

17. You have a funny definition of "irrelevant". You may mean "unwarranted", or "unjustified"

But you cannot mean "irrelevant", because the relevance is self-evident.

As for your "freedom to contract" mantra, that has been obsolete for going on 100 years ("Lochnerism"). The Congress unambiguously has the right to interfere with "voluntary contractual relationship(s)" simply because it is granted that power in the Constitution.

"they certainly don't HAVE to accept MC's terms"

And? The power of a contract ultimately lies not with the private parties, but with the state's mechanism of enforcing said contract. Not only may the state refuse to enforce certain contracts which it deems "unconscionable" and "against public policy", it also may limit the scope of what are known as "contracts of adhesion".

So again, I don't know if you're making a "can" or a "should" argument. Obviously, you have no support for the former, and little for the latter, imo. You cannot divorce this "free market" cant from the massive government bailout of the financial sector even if it would be convenient to for your argument if you could!

[northzax]

19. Of course I can separate the two

A bit sad you can't. A rational argument can be made that the financial bailouts of wall street and other institutions was in the best interests of the nation. You may not agree with that argument, or how the policy was applied, and that is certainly your right. That was an emergency corrective action. There is no argument being made here that this is in the best interests of anyone but 7-11. Nor is this 7-11 asking for relief from a poorly negotiated, exploitative or usurous contract. This is one entity asking the congress to force another entity to do business with them at a price the buyer demands. 7-11 wants the government to force MC to make their product more affordable to them. Will they also force Amex to lower their merchant rates? Discover? Carte Blanche? Is there some sort of regulation I should know about that forces 7-11 to take Mastercards as payment?

Price gouging is an important issue, and where consumers have little or no choice, inner-cities for instance, should be much more rigorously investigated and enforced. This is not price gouging. 7-11 has a reasonable choice to refuse MCs as payment (they take everything else, after all) any merchant does. If enough merchants either drop MC or stringy discourage it's use in their stores, then MC will have to make a choice. Merchant rates have been very low compared to historical levels because of both technology improvements (better electronic processing) and because the card companies and banks have been making their money directly from consumers. Who cares about a ten cent fee when you can make 30% interest? (yes, an oversimplification of the licensing and revenue streams) New laws are slowing that income stream and fees are switching from consumers to merchants.

[Romulox]

20. Simultaneously arguing FOR bailouts and AGAINST regulation is crass hypocrisy

You steely-eyed capitalists extol the wonders of unfettered markets. Until one of you loses money. Then it's "we're all in this together"? It's laughable.

[northzax]

22. Where did I argue against regulation?

I said that onerous terms can be retroactively changed, that price gouging should be prosecuted...anytime there is a strong imbalance of knowledge or power, I'm a big fan of regulation. Especially things that directly involve individuals. And, in fact, this price increase for using MCs is a direct response to increased and much needed regulation of the credit card industry's relationship with individual consumers. 7-11 however is in a much stronger bargaining position with Mastercard than either you or I are. There may be a case for regulation of merchant credit card processing fees, but 7-11 isn't making one except that it hurts their profit line. They aren't being exploited by the evil credit card companies, they just want lower fees to make more money for themselves. They want congress to regulate another company so that they can make more money. That's not regulation in the public interest, it's regulation in 7-11's interest. If they save ten cents on every transaction, you think they'll lower their prices by ten cents? Or simply pocket the difference?

I am in favor of regulation in the public interest. I fail to see how increasing 7-11's bottom line is in the public interest. But maybe you can make that case? Please do.

[Romulox]

23. Your heart is pumping peanut butter over a proposed regulation on credit card fees.

(Here's a hint for you: 7-11 gets its money from its customers, who are the ultimate payors of said fees.)

I've asked before if you were making a "can" or a "should" argument. It seems to me that you are making neither. This is just complaining. :shrug:

We know that Congress has the power to regulate these fees. So the question is whether or not they should. My default position is that a government subsidized industry should be highly regulated. You'll need to form a much better argument than a naked assertion this is not in the public interest. I frankly don't have the passion for the issue you have, but I am in no way adverse to strict limits on credit card transaction fees.

I'm afraid a song and dance routine about "freedom to contract" and "fairness" doesn't really negative the basic reality that Congress can and does regulate the CC industry. Your argument for deregulation coupled with massive bailouts is a tough one to make, and so far, well...

[zbdent]

9. imagine what it takes to make 7-11 think something's price is exorbitant ...

:scared:

[JVS]

16. ROFL!

[notadmblnd]

4. Someone tell me, why should I care?

I know you're going to say that those fees are being passed on to the consumer resulting in higher prices- but they're going to charge what the market will bear anyway. I really don't think 7-11 will lower any of their prices as a result of getting card companies to lower their fees.

So please tell me why I should give a shit?

[anigbrowl]

8. Well, you might have less flexibility in making your purchases

A lot of small retailers require a $10 minimum purchase to use credit or debit. This is a drag if you happen to have run out of cash. My nearest bank ATM is most of a mile away, and using one closer means a fee of several $, so it would be a lot less convenient for me if they were to withdraw the option of using plastic on small purchases.

[notadmblnd]

10. I imagine 7-11 has a bank machine in every single store.

I think one would be hard pressed to find one that doesn't.

[anigbrowl]

12. Obviously you didn't read my point about not wanting to pay ATM fees.

If I withdraw cash from a different bank's ATM, then I usually get charged $3, an expense I would rather avoid unless it's an emergency.

[notadmblnd]

13. Then I guess you have to ask yourself

How bad do I need that slurpy?:shrug:

[anigbrowl]

14. Or how bad do I need that band-aid? Or to get cash for the bus fare?

There's a lot of reasons you might find yourself short of or out of cash; not all convenience store purchases are frivolous.

[notadmblnd]

15. ok.

[Greyhound]

5. This would really hurt businesses like 7-11. The majority of their sales

are on cards and the majority are also <$20. The CC companies will have a hard time passing costs to their customers because of all the crap they've already pulled, so they're going to squeeze small businesses.

(Disclaimer; I know Southland is a huge corporation too, but the stores are mostly franchises which are somewhat individual small businesses.)

[anigbrowl]

7. Quite so. I often make small purchases and get $5 or $10 back on my debit

I signed their petition, happily. I think they're a good chain. Of course, they are overpriced on a bunch of things. I get my coffee there every morning and the coffee is a great deal, their hope is that I'll also buy something overpriced like a breakfast roll or something which is double the price you would pay for something similar at McDonalds. I'm totally OK with this - there's a mix of cheap and expensive prices on different things, and over time it averages out slightly in my favor. It's also worth a little extra to me to know they're open 24/7.

There's a privately owned convenience store right across the corner from my local 7/11 and I shop there too - the owner has wisely stocked it so that there's very little overlap with what 7-11 has, and they don't price war with each other. Thus he doesn't stock milk, but he has a much bigger variety of beer and canned food; he doesn't stock many snack foods, but he does make sandwiches to order. The only real complaint I have with the 7-11 is that their radio is tuned to the local easy listening station, listening to which is like being slowly drowned in high-fructose corn syrup.

[Recursion]

11. I learned Amharic thanks to 7-11

Not really relevant, just a neat fact.

But, yeah, a minimum 20-cent fee for a convenience store is going to be a problem.

[Stevenmarc]

18. A look at the surcharge gave a new meaning to Big Gulp

[Trillo]

21. This is a much deeper issue than either party would have you believe.

Should it cost money to use money?

If a debt is undertaken, then the debtor pays the interest that accrues. If a debt is not undertaken, but credits and debits are merely transferred from one account to another, then how does requiring a fee be paid allow the e-currency be "legal tender"?

I don't know how many times I've read that certain aspects of the government detest cash because it can enable an underground economy (such as drugs). Okay, so where's the public benefit for using electronic debits and credits where everything is third-party recorded and can be audited by authorities?

The smaller merchants often need to pay $500+ a month for the right to have a debit-credit machine and the associated SERVICE of transferring money, plus they pay a percentage (this according to local merchants I've spoken with). Shouldn't this be part of the any central banks role, to facilitate the moving of money from one place to another, without paying extra for the right to do so?

With cash, nobody pays a fee for using it. Electronic currency needs equivalent status, and even then the parties involved still lose their anonymity and privacy. However, if you're a little guy, under the current e-currency structure as I understand it, the parties exchanging money also need to pay fees that go to private entities, in addition to any other taxes that are due the local and state governments.

The Federal Reserve certainly seems negligent in providing "legal e-tender" to both the public and to the smaller merchants by allowing the existence of private tolls that must be paid for the use of money.

---

As I wrote the above out, I found myself wondering about the similarity of a "private tax" for the use of money to derivatives.

[northzax]

24. there are costs associated with cash

Maybe not direct fees, but costs. There's the labor cost of counting and processing it. There's the shrinkage cost from loss or theft. There's the cost of storage and insurance. It's actually cheaper for most places to take plastic in large numbers than cash. Plus, credit cards are faster (about five seconds each, compared to 20 seconds for cash on average) 15 seconds doesn't sound like a lot, but do a hundred transactions a day and that's 25 minutes of labor you're paying to make change or wait while someone gets money out. Do a thousand, and that's four hours of labor.


Now if I were Mastercard, I'd give businesses a certain number of sub $1.00 transactions a day for free or a reduced rate. Get people hooked on the idea that plastic=cash.

[Trillo]

26. One fantasy: "Think how much you'll save..."

by spending. This is one of the basics of advertising, to deflect attention away from the real to the imaginary.

There are at least two real issues.

1. Debt-creation creates actual dollars, though not necessarily paper dollars (I believe the stat is somewhere around 5% of all new money created is in the form of "paper dollars", the rest is in the form of electronic blips). If someone buys a $4.00 gallon of milk at the convenience store using a credit card, their assumption of new debt creates new currency. Perhaps the debtor will pay this debt off, perhaps not, but in either case, interest accrues to the creditor.

2. Creation of new dollars is not an issue with a debit-credit exchange, it is merely the transference of already existing dollars from one account to another. Many would say this is the main usefulness of money, the ability to barter in abstract units of exchange. Most folks get their money by exchanging labor for wages paid in the form of money, then in turn they purchase items they perceive they need or want, such as food, a need.

With respect to number "2", Should a charge be made solely for the privilege of using already existing money?

If the answer is yes, then the purchase value of wages earned are essentially lower than the amount earned wages are taxed.

If the answer is no, then there should be no direct fees to merchants or customers when they use existing money in exchange for products.

[northzax]

27. This is all well and good

But it's irrelevant. What you pay for, both as consumer and a merchant, when using credit/debit cards is convenience and security. You are paying to have someone else handle and guarantee the cash transaction. That's a service, and one somebody has to pay for. A debit/credit transaction has associated costs (someone has to build and maintain the system, secure the funds from the payer and deposit then to the payee, as well as handle such issue as fraud and theft.) in a cash transaction, the are born by the parties directly (if either side loses the cash or has it stolen, that's on them, right? If your wallet is lost, you can get new debit cards and credit cards, but the cash is gone, right? The way people used to do this was with checks, but the transaction costs of checks are much higher, they take time to write, and process. And without security, they may well be worthless. If someone steal your checkbook and writes a check, you may get that money back, eventually if you can prove fraud, but the merchant won't. Same with a bounced check. My business does 1500 credit or debut transactions a day. Imagine dealing with that many checks) so we pay the credit card companies to take that trouble off our hands. We know we're getting paid for all those transactions, even if they were fradulent.

[DainBramaged]

25. 7-11 charges absurd prices for everything they sell, who are they kidding

[NNN0LHI]

28. Why doesn't 7-Eleven give discounts for cash then?

Something smells here.

Don