Maryland National Corp., seeking to cut expenses on its credit card operations, this week notified 1,500 merchants that it would no longer process their card sales unless terms were renegotiated.
The move is seen as part of a trend by oil companies and others to make those who use credit bear the actual costs.
A spokesman for Maryland Bank, the firm's Delaware credit card subsidiary, said inactive and unprofitable merchant accounts cost it over $100,000 during the first half of this year.
The bank found that half of the 1,500 merchants had not had a single transaction in the past year. The other half had not generated business greater than $1,500 during the first six months.
The merchants paid an average of 4 percent of that amount, or $56, to the bank in fees. However, with the cost of processing and providing authorization service running about $105 a year per account, such accounts were not profitable. In the end the cost is passed on to the consumer using a Visa or Mastercard.
When a customer pays for a purchase with a credit card, the merchant must remit the sales draft to the bank to get paid. The bank then processes the sales slips and credits the merchants. Maryland Bank plans to eliminate the expensive method of paying the merchants by check and to ask them to open accounts at the bank.
Maryland Bank currently processes about 10,000 merchants' accounts. Spokesman Dan Finney estimated 80 percent of the businesses notified are located in Maryland. Thus far, 120 of the 1,500 have contacted Maryland Bank to renegotiate their contracts. He speculated that many of the others may have gone out of business without notifying the bank.
However, rival Union Trust's spokeswoman said that bank had received numerous calls in recent days from merchants seeking to switch banks. She added that the trend among banks to make their services cost-effective by raising fees has sent many merchants shopping for better deals.