The article pointed out that the 2-3% fee the credit card companies charge the merchants is never mentioned when the credit card companies are testifying to Congress about why they need to charge 26-29% interest rates
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You’re getting two different types of companies confused with each other. That’s why the processing fees are never mentioned.
The folks that testify to Congress are the underwriters (or lenders) like Capital One, Citi, etc. These companies don’t get the merchant processing fee. They just collect interest (and theoretically principal… one day).
Visa, Mastercard, Amex, etc. are processors. They collect the merchant processing fee. I believe Amex and Discover are the only two companies that collect both (that is, they are underwriters and processors), but they are a small percentage of the total due to the dominance of Visa and Mastercard.
(Actually I think folks from Visa and Mastercard have testified before Congress as well, but on a totally different subject than you’re referring to – monopoly/competitive issues.)
But all that aside, would you like to be in the credit card industry right now? Even with these “usurious” rates? Most of the underwriters are losing their asses right now, despite the high rates, because charge-off levels are so high. It’s pretty clear that, if anything, they haven’t been charging high enough rates as of late – or at least not high enough to reflect the risk inherent in their borrowers. Higher interest rates generally reflect higher risk, and higher risk generally reflects a higher probability of loss… it’s that old saw about risk and return…
