A chance for us to decode the real price of plastic

Thursday, October 7, 2010; A21

It's been a long time since a retail clerk has asked me whether I was paying with cash or credit.

But that question may soon return with a nice surprise for folks who have held on to the belief that cash is still king.

The Justice Department has proposed a settlement with Visa and MasterCard that, upon court approval, will allow merchants to offer discounts, incentives and, most important, information to consumers that will help them decide which payment method is the most cost-effective.

A civil antitrust lawsuit is still being pursued against American Express. Just as it alleged with Visa and MasterCard, the Justice Department contends that provisions in contracts American Express has with merchants violate antitrust laws. Specifically, the government says the companies set up rules that prohibit merchants from communicating to customers the cost of using a certain payment card.

I can barely contain my jubilation at this turn of events. It may soon be possible to have an option at the point of sale to decide how much more you want to pay just for using plastic.

This recent action stems from a long battle that merchants have had with the providers of credit or charge cards. You might not know this, but accepting your payment by credit card costs merchants about $35 billion annually, according to the Justice Department.

When merchants or service providers accept a credit card, charge card or debit card, they have to pay what's called an interchange, or "swipe" fee. The fee can average 2 to 3 percent for credit cards and 1 to 2 percent for debit cards each time a card is swiped to pay for a transaction, according to the National Retail Federation. But don't feel too sorry for the merchants. They pass on the billions in fees to all customers by raising prices.

Here's why the government got involved. The Justice Department says American Express, MasterCard and Visa had rules explicitly prohibiting merchants from rewarding consumers with a discount or other incentives when they pay by cash or check, or when they use credit cards that cost merchants less to accept than other cards. For example, using a credit card that is part of a rewards program might carry a higher swipe fee.

"These restrictive rules restrain competition among credit card networks for merchant acceptance and distort the competitive process," said Christine Varney, assistant attorney general in charge of the Justice Department's antitrust division.

Once approved by the court, the settlement with MasterCard and Visa immediately allows merchants to:

l Offer a discount, rebate or a free or discounted product or service depending on what card or form of payment is used.

l Tell customers which credit cards they prefer to accept.

l Promote a particular credit card network or lower-cost card.

l Communicate to customers what it will cost when a particular credit card network or card is used.

"We want to put more money in consumers' pockets, and by eliminating credit card companies' anticompetitive rules, we will accomplish that," said Attorney General Eric H. Holder Jr.

When you see what the government is making the masters of credit do, it seems so logical, so right. And it makes me feel like I've been a sucker. Why haven't we had this choice all the long?

American Express at this point is the lone holdout. The government, which contends that American Express has some of the highest swipe fees, wants the company to agree to the same deal it's struck with MasterCard and Visa.

"We have no intention of settling the case," said Kenneth I. Chenault, chairman and chief executive of American Express.

In a memo to employees, Chenault says "merchants are free to either accept or not accept American Express cards. Likewise, consumers are free to use any card they wish."

Chenault's right.

We've been complicit in the behavior by the plastic pushers.

I've repeatedly pointed out a number of academic studies that show when people use plastic - either a debit card or credit card - they spend more because the day of reckoning comes later. It's only when they see their bill or bank account statement that many people realize how much they've spent.

Rather than just quickly swiping their cards, this new development will be a chance for people to pause and think about paying with borrowed money. Many will still go ahead and swipe, but the more someone contemplates the cost of credit, the more likely he or she may realize that cash is better.

Readers can write to Michelle Singletary c/o The Washington Post, 1150 15th St. NW, Washington, D.C. 20071. Her e-mail address is singletary@washpost.com. Comments and questions are welcome, but due to the volume of mail, personal responses may not be possible. Please also note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.

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