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Revenue model needs revision

Big banks have relied increasingly on fees to pad their revenues - as much as 40 percent of their annual revenues in some cases. Late fees, bounced check fees, near-usurious interest rates ... and a little known credit card fee on merchants often called the interchange fee, or swipe fee.

American consumers pay among the highest swipe fees in the industrialized world - up to $2 of every $100 spent by credit cards goes to banks in the form of these interchange fees.

Merchants hate them. That's why some convenience stores require a $5 minimum purchase to use a credit card.

Here's what the Merchants Payments Coalition says about swipe fees:

"This is about fairness, plain and simple," said Lyle Beckwith, vice president at the National Association of Convenience Stores.

"For years, Visa, MasterCard and the big banks have forced higher prices on small businesses and our customers by setting swipe fees behind closed doors with no transparency and no negotiation."

For many businesses, swipe fees are now their highest non-labor cost, outpacing even health care, the coalition says.

As other countries have reined in excessive swipe fees in recent years, and the actual cost of processing a transaction has gone down, Americans are now paying triple the amount in swipe fees they paid in 2001, reaching $48 billion last year alone.

Now a bill has been introduced in the U.S. House to enable retailers to negotiate with banks to reduce those fees.

The measure, called the Credit Card Fair Fee Act, would help ensure fair negotiations over swipe fees.

Under the bill, merchants and retailers would be allowed greater access to negotiations with banks to establish rates and terms, while an antitrust attorney from the Department of Justice would be present at the talks.

This bill should become law because it's good policy. The Merchants Payments Association says only 13 percent of the money generated from swipe fees is used to cover the cost of the transactions - the original purpose of the fee.

Banks need to take a hard look at their business model and realize that revenues based on fees are unsustainable and simply bad business practice.

You can only bite the hand that feeds you so many times before the hand slaps back.