Dear WTOP: 'Swipe Fees' Don't Rip off Consumers

News Editor, WTOP Radio<?xml:namespace prefix = o />

<?xml:namespace prefix = st1 />Washington, D.C.

Dear Sir or Madam:

Interviewed this morning by Bruce Alan and Mike Moss, economist Robert Shapiro explained that the "swipe fees" that credit-card issuers charge merchants each time merchants' customers pay for purchases with credit cards are reflected in the final prices of all goods and services.

Indeed so. Contrary to Shapiro's allegation, however, nothing is unusual or shady about this practice; it doesn't rip-off consumers.

Merchants offer consumers the option of paying with credit cards because consumers value this option.  So offering this service is good for merchants' businesses.  This service, alas, isn't free.  Credit-card issuers charge for it.  But this fact differs not a whit from the fact that, say, electricity suppliers charge merchants for electricity, or that workers charge merchants for the time workers spend on the job.

Does Mr. Shapiro believe that consumers are ripped-off by the fact that prices of goods and services must be high enough to compensate merchants for the electricity and labor that they use?  Does he believe that Congress is remiss in not trying to end the practice of charging for electricity or for labor services?  If not, why does he believe consumers are ripped off by swipe fees, and why is he disappointed that Congress hasn't prohibited these fees?


Donald J. Boudreaux

Don Boudreaux is the Chairman of the Department of Economics at George Mason University and a Business & Media Institute adviser.<?xml:namespace prefix = u1 />

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