Taming the Credit Card Monster: Managing Processing Fees and Policies By Traci Matt Associate Editor A recent post on the Electrical Rebuilder’s Association (ERA) Web site forum unleashed a torrent of frustration from rebuilders reeling from growing credit card processing fees: “IT am curious about the legality of charging customers more when they use a credit card,” wrote one member. “Tf you read your contract, it says you cannot do this. Getting caught is another matter.” “Tf anyone can find (a company) that charges a fixed amount across the board I certainly would like to hear about it. My company, although supposedly a whole- sale merchant of fees, has so many hid- den fees it is driving me nuts.” “IT wish the good old days of cash would come back.” Tim Lang, owner of Tomahawk Battery and Rebuilding in Tomahawk, Wisc., put numbers to his angst: “As we see the economy slipping farther we will see more people using plastic. I had my base figure at around $400 a month in fees. I cried when I saw last month’s statement. It was well over $900; that’s a serious hit to the bottom line in one single month. Sorry folks, but my prices will have to go up, and I hope that can reduce the credit card fees.” While consumer credit has not neces- sarily been front-page news this sum- mer — more attention been given to the underlying issue of soaring fuel prices— the small business owner is seeing the effects of bank fees as an increasing per- centage of their operating costs. Add to this the fact that most people are now turning to the convenience of plastic for purchases (credit or debit) and this has grown into a monster to be dealt with. Rebuilder Bob Thomas of B&H Electric in Orange Park, Fla., said many of his longtime customers who have always paid with cash or check are now regularly turning to credit cards. Both his state and national government accounts must pay by credit card unless he wants to allow them access to his bank account for direct deposit. “Oh yes, there’s a big increase in the use of credit cards, and not just because of the tough times,” he said. “Credit card usage has been on the increase for a long time. The credit card industry has seen to that. They offer rebates to their customers and pass those charges on to the sellers. The credit card industry has made it easy for merchants to sell things to people who really have no money to buy them.” Thomas added that merchant fees have risen to the point where a small business may actually by paying close to 5 percent of the sale for the service. “With over half our customers paying by credit card, that means we are giving the credit card industry 2.5 percent right off the top of our sales. While credit cards enable me to sell something to someone far away, they are a double-edged sword.” Last month, the Federal Reserve reported heavy credit card use boosted borrowing during the second quarter. Consumer credit increased at an annual rate of 3.6 percent in May, pushing total consumer debt up by $7.8 billion. The increase was led by much stronger demand for revolving credit, which is pri- marily credit cards, and use of such credit rose 7.1 percent in May. Executives at major credit card issuers American Express Co., and Discover Financial Services also reported that credit conditions have been deteriorating more this year than they had anticipated, even with the government stimulus checks going into circulation. It Pays to Be Aware Rebuilder Jim Morton, owner of Jim Peoria in Corvallis, Ore., said processing fees are just another cost of doing business. “To my limited knowledge there is no way around them. The only thing a busi- ness can do is figure your average process- ing fees for an average month and add that to your overhead when you figure what you are going to price your parts and labor at,’ he said. “You have to look at the fees just as you would your electric bill and go from there. Some months you might gain a bit and some you might lose a bit.” Morton’s June activity as a “really small operator” netted his electronic pay- ment processor $35.15 for eight transac- tions totaling around $738. This included an $8 “service maintenance fee” as well as a $6.41 “minimum bill adjustment.” Electrical Rebuilder’s Association (ERA) President Jim Thomas, owner of Smith Auto Electric in Yakima, Wash., said shopping for the best rate from pro- cessing companies, along with “careful research and diligence” has saved him 40 percent in monthly fees. “Other controllable fees are related to how you process your credit and debit cards and the type of equipment you are using,” he said. “If you swipe all your credit cards you will get the best rate. If you have to key in the card number you will pay more. “Tf you take debit cards they can be processed two ways —as a credit card, which costs you more, or as a true debit card which should cost you the least amount. This is where most processing companies are getting in your pocket. Newer equipment can handle a keyp