Marketplace - Credit card fee feud

Episode Date: February 26, 2024

Every time you swipe — or, these days, tap — your credit card, the merchant has to pay a fee. Some fed-up retailers are petitioning for more card fee regulation, but banks say consumers have plenty of choice as it is. Also in this episode: consumers’ moods versus economic data and pandemic purchases that buyers regret.

Hey, Marketplace listeners, you know around here we like to think you're never too young to learn about the economy and financial basics. That's why we're bringing the Million Bazillion Live Tour to schools to teach important lessons about budgeting, investing, saving, and more. It's all the fun of the podcast, but now live, immersive, and interactive. Special thanks to our tour partner, Greenlight, the debit card and money app for kids and teens. Learn more about Greenlight at greenlight.com slash million. That is greenlight.com slash million. Two themes for the program today. This week in data and the inner workings of the consumer mind.

From American Public Media, this is Marketplace. In Los Angeles, I'm Con Rizdal. It is Monday today. This one is the 26 spite of how it is sometimes used in the vernacular, data is in fact the plural form of the word datum. So the proper construction for the top of the program on this Monday is the data this week are going to be important. Do not, however, take my word for it. My name is David Vera. I'm a professor in the Department of Economics and Associate Dean at the Craig School of Business at Cal State University, Fresno. My name is Nicole Servi. I'm an economist with Wells Fargo.

I think it's going to be for the Fed and actually for economists in general, trying to drain from a fire hydrant. I mean, you're going to get a ton of data and you're going to process that data. I think that characterizes it well, especially when you're thinking about it in context of this past week where we had absolutely nothing. It feels like the fire hydrant is opening. So a fire hydrant preview, if you will, in three parts.

So one of the things is we want to make sure that the economy is still growing. The growth is healthy, so it's not inflationary. So we're going to be looking at, of course, the GDP numbers. GDP, gross domestic product, for which we will get an update on Wednesday. Our first reading last month, in case you don't recall, had this economy growing at an annual rate of 3.3 percent. Next. Given the effect of Fed funds rate on the other rates in the economy, I actually will be looking at the real estate numbers. So the S&P, Case-Shiller Home Price Index. We get new home sales and then we also get construction spending. New home sales for January were in fact out today, up a percent and a half from December,

but that was less than expected. The all-important Case-Shiller Home Price Index comes out tomorrow. January construction spending comes on Friday, all of which, which is to say real estate, matters because... The Consumer Price Index in January, one of the reasons that it surprised the upside is because the shelter component was stronger than expected. And that's a product of some of what we've seen in terms of the housing market. So that's item two. Now, last but absolutely not least. Of the economic data that we're getting this week, what's the most important, maybe what's the most consequential for markets? It would probably be the personal income and

spending report. Within which one will find the personal consumption expenditures price index, PCE for short. As you know, the Fed's favored measure of inflation. The other inflation datum that gets a lot of attention, CPI came in higher than expected at 3.1%. And so let's say the same happens for the PCE deflator. You might see some movement because that's a sign that perhaps the Fed is not getting closer to that two percent inflation goal if inflation does come in stronger than expected. Mark your calendars. That PCE number comes to us on Thursday. What movement there was on Wall Street today was to the downside. We will have the details when we do the numbers.

There have been stories aplenty about how consumers spent wildly, one could fairly say, during the first couple of years of the pandemic. There were booms in exercise equipment and air fryers, outdoor heaters, too. Now that life is mostly back to normal, though, what of all that stuff? Marketplace's Kristen Schwab now on buyer's remorse. If you were a parent in 2020, you know exactly how Sarah Tremblay, a reference and instruction librarian in North Shore, Massachusetts, felt when she started working from home. You know, my son would come in and he'd be like, Mom, question. And then my husband would come in and be like, when's dinner?

And I was going stir crazy. That's around the time she started reading about walking pads, portable treadmills that fit under a desk. And I kind of was treating it as like, yes, I'm going to get on this and then I'm going to become a runner. Okay, Tremblay didn't end up running. She did walk a lot while working or listening to a podcast, but the thrill was short-lived. After a year, the treadmill's belt stopped working. And long story short, the company, Treadly, went out of

business, leaving her with an 80-pound, $800 machine that barely works. When I have to like scoot it around to get to a box in my basement, I'm like, oh, piece of garbage. Why is it in my house? Plenty of people tried to buy their way through the pandemic, that is, if they had jobs and means to do so. And that's actually a very normal human response to chaos. It's what Christine Whelan, a professor of consumer science at the University of Wisconsin, calls... Credible, costly commitments. Purchases we think may solve our problems. Like for me, during the pandemic, I bought a Peloton. I used it a lot. I still do, sometimes. But I can't decide if it's because I actually enjoy it

or because I spent so much money on it. And, you know, that actually could be OK. So the idea of buying something expensive and then feeling so guilty that you have to use it, that is a commitment strategy in and of itself. and of itself. The word guilt is big here because, she says, the pandemic forced a lot of us to think about who we are and the people we've always wanted to be. Someone who runs marathons, bakes bread, plays the guitar. Well, those things just sort of fell by the wayside when we realized that, in fact, the reason why we hadn't done those previously is because we actually didn't want to do them ever. She says when those purchases go unused, they remind us of our failures.

And the bigger, more expensive and more life changing the item, the more it weighs on us. I try not to regret things as a matter of principle. But we used to be so carefree. Michael Selick is not talking about his Peloton, though he got one of those too. He's talking about the home he and his wife, Christina Kendall, bought in Seattle during the pandemic. Like a lot of people, they were lured by low interest rates. And we thought, oh, well, what if we buy what's in our budget and then we renovate? Are either of you handy? No. I can use a drill, sort of, but...

I can build Ikea. Yeah. We're very good at Ikea furniture. You can probably sense where this is going. The house needed a lot of work. A corroded sewer line, flaking lead paint, a closet in the basement that Selick calls a forest of fungus. They had a contractor take a look.

The quote was $900,000. Close to the original listing price of our house. And I thought, I told him, you could build a new house for that much. And he said, well, yeah, but you like your house. Well, then I have to ask, do you like your house? It's a very cute house. That big sigh is Kendall. She says they don't want to let go of their mortgage rate. It's 2.75 percent. So they'll begrudgingly tackle one project at a time.

As for that Peloton they bought? It is in the moldy basement. It is collecting molds. My Peloton is in my bedroom, staring at me every time I open my eyes. I recently looked up its resale value. The going rate is about a quarter of what I paid. I'm Kristen Schwab for Marketplace. Consumers drive this economy. That is just fact. So understanding how consumers are feeling about this economy matters a lot. The Index of Consumer Sentiment from the University of Michigan, also the Conference Board's Consumer Confidence Index, the latter out tomorrow, I might add, the Conference Board's Consumer Confidence Index, the latter out tomorrow, I might add,

try to do that, measure it, by asking people how they are feeling about their own situation and about the economy at large. But feelings and data don't always line up. So we made some calls. Sasha Indarte is at the University of Pennsylvania's Wharton School. Kartik Sastry is at Princeton. Thanks to you both for being here. Glad to be here. Thank you. Sasha and Dorothy, why do we measure these things? Because honestly, it's a little squishy, right? They're about feelings, and economics is nominally a science, right? That's right.

So one of the big goals of measuring consumer sentiment and consumer confidence is to understand how people perceive both current economic conditions and also get a sense of their expectations about future economic conditions. Those two things are the fundamental determinants of how people are going to behave today. For example, do I have the resources I need and the money available to spend to make a big ticket purchase like a refrigerator? Or am I worried about saving? Am I worried that there's a greater risk of losing my job in the next year? And maybe that's something that would make me postpone making those kinds of expenditures. So the short answer is that sentiment and confidence, it's very importantly and significantly related to people's actual behavior and decisions.

It's really interesting because you mentioned there's so much hard data about the economy, right? So why are the soft data useful? Well, in times of crisis, like after the stock market bust in 2001, and also in 2008 and 2009, we actually saw that the consumer confidence indices may have given a better real-time picture of how the economy really seemed to people. So it was of great benefit to policymakers and decision makers in those times. All of which I get, Professor Ndarti, but riddle me this. Is it not possible that consumers can be wrong? If you went outside on Figueroa Avenue, right outside my offices here, I guess it's Figueroa Street, but that's a whole different thing. And as 10 people, probably eight of them would say the economy is terrible right now, when in point of fact, it's actually pretty good. So, yes, it's very possible that people have incorrect perceptions.

For example, when it comes to things like inflation, this is something that people persistently overestimate. Now, people may make incorrect predictions, but to the extent that what they believe, whether it's going to turn out to be right or wrong, is influencing their behavior, knowing what they believe is still ultimately going to be helpful for predicting the actions. And then you can also get self-fulfilling phenomena where if people believe things are going to be good in the future, you invest more, you spend more, and then you might in effect make it actually true. Well, so let's riff on that for a little bit, Professor Sastry, because, you know, as you know, an economy has been, sorry, as you know, a recession has been predicted to be six months away for something like two years now. And consumers, right? I mean,

you know, that's not an original joke, but that's the truth, right? And so consumers have been a little nervous. Corporate America has definitely been nervous. And so they're looking at what consumers are doing. So it kind of matters macroeconomically that consumers have an accurate perception. Yes? Absolutely. And I actually also want to take this opportunity to dig into one slightly more subtle pattern in the data that really seems like it's popped out over the last six to 12 months, which is within these confidence indices. They ask a number of more specific questions about how people think their own financial situation looks. That's the focus of some questions. And others are about the economy writ large. And one pattern in the

Michigan survey is that the answers about one's own financial situation look a little bit better recovered than people's perceptions about the economy overall. And I think that's an interesting gap. It doesn't show up so much as starkly in historical data. And that might have some clues about both the economic mood and the political mood right now. Well, so put two and two together for us. I mean, you know, you literally wrote a paper on the importance of narratives in economic, you know, forecasting and prospects. So what does it mean to you that we see these things that's right um so some of the work that i have done has been about testing these hypotheses that waves of optimism and pessimism

drive what's going on in the economy and and whether there's evidence that they can be self-fulfilling i think my suspicion is that for economic decisions what households say about their own situation is a little bit more important. And I think that's a statistical fact, but it also comes a bit from self-reflection that people's decisions about whether to go in for a new house or a car really depend a lot on what they think will happen with their own income

and the buying conditions in their local communities. And a little bit less to do with how people answer questions about the overall economy. So I am cautiously optimistic because a lot of the narrower questions about how people assess their own situation don't look as pessimistic. Yeah, and I can add a couple of data points on to what Kartik mentioned as well. on the side of the broader economy and how people feel about that. So there's prior research, for example, by Amr Soufi and co-authors that have shown that people's perceptions about the economy very much are predicted by whether their team is in the White House. So if you're a Democrat and there's a Democratic president, you tend to be more optimistic about the economy. So this would

be a conjecture, but we're in a time where there's more polarization. And this is something that could make people really lean into focus more on who is in the White House and what that might mean for the broader economy. And there might be more of this disconnect between individual circumstances and the macro economy. Yeah. I mean, you know, Marketplace did a survey a number of years ago. Certainly it was it was five or six anyway before the pandemic in which based on what party was in the White House, that affected how they trust actual economic data, which is which is, you know, challenging. Right. It's troubling if you have this objective data coming out and people are just choosing not to believe it because of which team is in the White House. Sasha and Darte, quickly, why doesn't the government measure this? Why is it Michigan and the conference board? So I think one reason why the government isn't nowadays involved in the measurement of this,

this wasn't necessarily always true in the past, is that it might just be really hard to believe. So that gets to, sorry to interrupt, that gets to the feelings part of this, right? It's the qualitative thing versus the actual hard numbers thing. Yes. So I think the qualitative aspect of it makes it harder. It's one thing to see, you know, what have sales been at my firm, but how are my customers feeling? That's a lot harder to measure. Right. Sasha and Darte at the Wharton School at the University of Pennsylvania, Karthik Sastry at Princeton. Thanks to you both. I appreciate your time. Thank you.

Thank you. Thank you. Coming up. Who doesn't love a better profit margin? Wait, is that a trick question? First, though, let's do the numbers. Dow Industrials off 62 points today, two-tenths percent, closed at 39,069. The Nasdaq off 20 points, about a tenth percent there, 15,976. The S&P 500 off 19 points, four-tenths percent, 5,069. Amazon shares ticked down a tenth of one percent today.

This is also the retail giant's first day as a member of the 30-stock Dow Jones Industrial Average. As we told you what happened last week, it replaces Walgreens Boots Alliance, which slid three and four-tenths percent. Today, the Federal Trade Commission announced it is suing to block Kroger's $24.6 billion acquisition of Albertsons. Investors did seem to be expecting that. Albertsons ticked up 0.6% today. Kroger dropped about 2%. Bond prices fell. Yield on the 10-year Treasury rose 4.28%.

Is the yield you're listening to Marketplace. I'm Kai Risdahl. You go to the store or you order something online. You go to pay, you pull out your credit card or you point your phone at the reader. A couple of seconds later, you're on your way. You may be all set, but you having used your credit card to pay has enmeshed you in a behind the scenes free-for-all of lobbying campaigns and press releases, corporate decision-making and congressional politicking. Retailers are none too happy at the fees they have to pay whenever a consumer swipes or taps to pay, and they want Congress to do something

about it. Here's Marketplace's Sabri Beneshwar. Hot oil and hand-cut fries bubble and roil in a fryer at Donovan's Pub in Woodside, Queens. Watching over them is co-owner Dan Conner. When you think of, you know, restaurants that are in the middle of a neighborhood that everybody knows each other, that's Donovan's. Also getting fried is Conner's patience. You can't make money and you can't survive. Donovan's Pub, like many restaurants, is at the crossroads of economic trends that are eroding its bottom line. Inflation, rising labor costs, rising utilities, and credit card fees.

Yeah, the swipe fees have gone up over the years, and people are more inclined to charge their meals now, to charge anything now. Every time a customer swipes their credit card, the merchant, the restaurant, the store, pays fees. Online orders require even higher credit card fees because the risk of fraud is higher. More people are ordering online these days and more people are swiping their cards more often in general, maybe for convenience, maybe for reward points. Yeah, when we first took over 11 years ago, you know, we were doing

probably 50, 60 percent of our business in cash. And now that's probably down to, you know, 10 percent, 20 percent. So more of his very thin profit margin goes to credit card fees. Merchants paid $126 billion in credit card fees in 2022, an increase of 20 percent from the year before and more than double from 2013, according to the Nielsen report. It's now at the point where swipe fees are the third highest cost for restaurants right now, behind food and behind labor. Sean Kennedy is an executive vice president at the National Restaurant Association. Some of the increase in what merchants are paying credit cards is inflation and more swiping. But merchants say it's also due to credit card companies and banks raising their fees. This is a big part of the fight that's been stewing between

the retail and credit card industries. Credit card companies say their fees have not changed much. Richard Hunt is executive chairman of the Electronic Payments Coalition, which represents credit card companies and banks that issue cards. Our rate has remained at 2% for the last decade. Tell me what else has remained flat over the last decade. Not a cup of coffee, not donuts. But merchants point out that that is an average of hundreds of different kinds of rates for different cards and different merchants and conceals increasing numbers of high-end credit cards that charge merchants higher rates.

Doug Cantor is general counsel for the National Association of Convenience Stores. A lot of times what piece of match card will do is they'll create new rates, leave the old ones in place, and say, well, we didn't increase all these rates in here, and they sort of average out all their rates, even though they know the banks are issuing more cards at the higher rate. A credit card that earns you all those travel miles, that tends to charge merchants a higher fee. Merchants aren't allowed to single that card out. If you take one kind of visa, you have to take them all. Nor can they tell consumers they're

going to charge more for using that card because of the fees. Merchants from gas stations to ice cream shops are lobbying to regulate credit cards and inject more competition of the fees. Merchants from gas stations to ice cream shops are lobbying to regulate credit cards and inject more competition into the industry. Credit card companies argue that the market is plenty competitive. Capital One's plan to buy Discover could make both of them bigger competitors to other credit cards and banks that issue cards. The industry also says regulation that reduces fees would threaten one of consumers' favorite perks. Again, Richard Hunt with the Electronic Payments Coalition.

There's no doubt reward points would be severely reduced or not even at all in use anymore. But merchants point out rewards programs still function well in countries like Australia that have regulated credit card fees. And so the battle between industries rages on with hundreds of billions of dollars at stake. In New York, I'm Sabri Beneshour for Marketplace. The flip side of the consumer sentiment and confidence day that we talked about earlier is, of course, business sentiment and confidence. According to a recent survey from CNBC, 28 percent of small businesses describe the current state of this economy as either excellent or good. That's up from 18% the year before. So with that in mind, we checked in with one of our regulars to hear what that excellent or good economy looks like. Annie Lang Hartman is the owner of Wild Letty up in

Leelanau County, Michigan. Looking at the numbers this morning, we are up 35% for retail sales in our store, which feels amazing. I personally thought it felt really, really slow in January, but that always seems to be the trend. After Christmas, people aren't buying as much, but just the way that our business has been trending the last few years, the way that our business has been trending the last few years. Sales are just going to go up every month until we hit the absolute madness that is retail in Leelanau County in the summer. We haven't run into a lot of inflation as far as pricing of our products, where we're seeing things go up and stay really high are the things like utilities and things that are behind the scenes for us that I'm starting to really feel pressure from. So I do have to raise our pricing on our greeting cards. Right now they're $5. On March 1st, they're going up to 550 we also have been very

vocal to our retailers that we work with that this was going to be happening so it's a great time to restock before that pricing goes up because right now who doesn't love a better profit margin I know I do it's just for a small business everyone's doing what they can and you just have to roll with the punches, I feel like right now. Annie Lang Hartman rolling with the punches in Leelanau County, Michigan. Her store, of course, is called Wild Lay. This final note on the way out today in which, man, you do something the United States hasn't done in 50-something years, and just because your moon lander tips sideways, again, on the moon, your share price gets walloped. Intuitive Machines, ticker symbol, by the way, L-U-N-R, lunar, off 34% today. Our daily production team includes Andy Corbin, Elise Hassan, Richard Cunningham, Maria Hollenhorst, Sarah Leeson, Sean McHenry, and Sophia Terenzio. I'm Kai Risdell. We will see you tomorrow, everybody.

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