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Using plastic increases gas cost?

Thursday, July 17, 2008

Store Manager of J&P Flash Market in Salem, Cindy Branam, swipes a customer's credit card. Unlike White Oak Gas Station, Branam's store does not charge a different amount for gas paid for with a credit card or with cash. Photo by Terrah Baker
The convenience of credit/debit cards is taking an unseen toll on independent merchants and increasing what you spend on gas.

White Oak Gas Station in Salem has had to re-educate their customers on their new "cash discount," according to Store Manager Deb Mefford.

Mefford said that customers are confused by their new policy of charging up to 6 cents more for gas when paid for with a credit card. The discount has been in place since May 2008, and allows cash-paying customers to receive a discount that is reasonable, said Mefford.

"It's not fair to raise gas prices to make everyone pay the extra we have to pay," Mefford said.

As Ann Hines, Executive Vice President of Arkansas Oil Marketers Association explained, the "extra" refers to fees the merchant is charged for every credit card transaction.

As gas prices rise, so does the amount of money gas stations must pay to the credit card companies. There are two fees that a merchant must pay on every credit/debit card transaction -- a percentage of the purchase, which can vary anywhere from 1 to 3 percent and averages 1.75 percent throughout the nation, and a transaction fee that can range from 10 to 30 cents, according to the National Association of Convenience Stores.

While putting together a Bill in the United States House of Representatives, the House Judiciary Committee reported that these fees allowed credit card companies to generate income of over $30 billion in 2006 in interchange fees (the percentage of the price plus the transaction fee charged to merchants), a 117 percent increase from 2001. In 2007, fees cost merchants over $40 billion, a 17 percent increase from 2006.

"Merchants are forced to deal within this system because it is simply not an option to refuse to accept Visa or MasterCard from their customers," John Conyers, D-Mich., and House Judiciary Committee Chairman, said in regards to the need for regulation of the credit card companies.

The NACS, who have supported lawsuits against the credit card companies and who collect data regarding the damage interchange fees have on independent convenient stores, reported that in 2006, credit/debit card fees were $6.6 billion nationwide and exceeded convenient store industry profits which totaled $4.8 billion. According to NACS, this means that the credit card companies took in more profit at the individual stores than the store owners themselves. Next to labor costs, credit card fees are the largest expense at the store level according to the report.

"Basically, the credit card companies are eating our lunch," Hines said.

For customers, this means higher gas prices to accommodate for the fees. At an average of $4 per gallon, gas brings in an average of 7.5 cents per gallon in fees while gas stations are only making around 2 cents for every gallon, according to the figures. An average of 83 percent of the gas station's fuel profits are going straight to the credit card companies, according to a CNN report.

That is why Mefford said removing the fees "is just a way to reward our cash paying customers."

CNN reported that although some gas stations have begun to offer this benefit, many smaller merchants cannot afford to sell below cost and in turn cannot compete with larger stations like those at Wal-Mart. Larger companies can afford to lower their prices to the point of not making a profit from gas revenue, where independent stations cannot.

About 80 percent of gas stations include convenience stores, according to the report, and as gas prices rise, along with fees, stations are making all of their money from purchases within the convenience store.

"Selling below cost is just a way of life if you are in an extremely competitive market. You try to make up the money you lose on gasoline by making a better margin on water, soft drinks or anything else you sell on the inside," Hines explained.

Another confusing aspect of White Oak's cash discount is that of debit card fees.

"Some customers get upset because they think a debit card is the same as cash. Although it is to them, the banks charge a transaction fee and there's the credit card processing fee," Mefford said.

This is why, as Mefford explained, the price of gas when using a debit card is the same as the price of gas when using a credit card.

Credit card companies deny that there is a problem, saying it is the volume of card users that has risen and not the interchange fees, but organizations like the NACS said much more regulation is needed for the benefit of the merchant and the consumer.

Until deliberation of Bills such as the Credit Card Fair Fee Act turns to law, or credit card companies lower interchange fees, many gas stations and convenient stores are offering their own credit cards or cash cards in order to avoid the fees. Customers who opt to use the cards are being charged less for gas as well as gaining rewards on every purchase, Mefford explained.

Of course, there is always the age-old option, many times forgotten by 60 to 70 percent of our credit/debit card using population -- cold, hard cash.

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