Each year, in addition to interest, late fees, over-the-limit charges and other fees charged by credit card companies and their banks, consumers pay billions of dollars in hidden fees that never appear on their monthly statements.

These hidden charges are called credit card “interchange fees.” Credit card companies and their banks charge them to merchants every time a credit or debit card is used to pay for a purchase. As much as $2 of every $100 you spend goes to card issuers.

Credit card companies and their banks collected more than $36 billion in interchange fees last year alone, up 17 percent from 2005 and 117 percent since 2001. The average American family is now paying more than $300 a year in hidden credit card interchange fees. Merchants are effectively left to pass along the credit card interchange fee to consumers in the form of higher prices. The credit card interchange fee increases the price of everything consumers buy, even those who don't use plastic and choose instead to pay for their purchases in cash or by check.

With the price of gas at more than $3 a gallon, credit card companies and their banks are collecting as much as 8 cents a gallon in interchange fees, even as they continue trying to keep consumers in the dark about how much they are really paying.  Americans are paying pay the highest interchange fees in the world, an average of two percent, compared with less than one percent in most other industrialized countries. 

Interchange fees have a complex pricing structure, which depends on the card association, the type and size of the merchant, the type of credit card and the type of transaction.  Convenience stores, supermarkets, warehouse clubs and other merchants that sell low-margin items have lower rates.  Hotels and car rental businesses have higher rates. A newer premium credit card that offers more rewards will have a high rate.  Among transactions, those with a credit card have higher rates than those with a signature debit card, whose rates are in turn higher than PIN debit card transactions. Sales that are not conducted in person, such as over the phone or Internet, have higher interchange rates, apparently due to their increased risk of fraud.   

There is notable disagreement among network participants on the subject of interchange fees, with card associations coming under fire for the structure and application of those fees.  Merchants are increasingly seeing interchange fees as an unnecessary and growing cost over which they are powerless.  Additionally, banks are now issuing credit cards with even higher interchange fees, but merchants cannot refuse to allow purchases with those cards.  Therefore, merchants view issuing banks as gaining revenue at their expense, without any added value for the merchants.  Merchants pass on the cost of interchange fees to their customers, who are usually unaware of this expense.