Retailers Seeking to Negotiate Credit Card Rates with the Banks

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The debate over retailers’ credit card interchange fees has spurred on several studies on the feasability of lowering the rates and allowing the retailers to negotiat their fees with the banks.

President Obama requested a study of the fees in May when he signed new legislation about banking fees.

The Merchants Payments Coalition is studying the effects of lowering the rates in Australia, Canada, New Zealand, and the European countries. They want the right to negotiate fees with the banks. The Merchants Payment Coalition, headquartered in Washington, D.C., is a group of merchants and other businesses representing 2.7 million stores and 50 million employees. The group does not support the interchange fees which merchants pay, saying they are excessive and a “threat to open markets and free competition.” They have also made an appeal to consumers to support their cause.

Representative Peter Welch is investigating the idea of setting minimum and maximum amounts for credit card purchases.

These debates are taking place because of the effects of the economic crisis on the retailers and small businesses. The issue of negotiating rates with the banks has been a long standining issue with small businesses.

Retailers on Credit Card Fees

Merchants are currently in litigation over credit card interchange fees, which are the fees that merchants pay in accepting credit card payments at their storefronts. This has been a bone of contention for a number of years. Merchants feel their fees are too high and have a desire to set their own rates for accepting credit cards or to have the rates lowered.

There are bills pending in Congress which would allow he merchants to negotiate their fees with the banks. In the event of a dispute, Senator Richard Durbin, who has proposed this recent bill, has recommended a panel of three electronic -payment-system judges to mediate.

Analyst Robert Naoli believes the consumer would not benefit from lower interchange rates, as it is unlikely the merchant would pass the savings onto the customer. As it stands now, the consumer pays the interchange rates in the form of increased prices on goods and services. If the fees are lowered, the banks would charge consumers higher interest rates on credit cards and do away with rewards programs.

This legislation could be resolved through litigation rather than the passing of the bill. Whenever banks are restricted from making money, they retaliate in assessing higher fees.

Currently, the banks set the interchange rates for each merchant when he acquires a credit card terminal to accept credit cards at the storefront. The merchant has no say over what the rate will be. The banks arbitrarily increase the rates on a yearly basis, which is why the merchants want the right to set their fees.

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Teens Spending Less on Clothes – Shopping for Bargains

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Teen unemployment has reached an all time high of “25.5%” reports Catherine Rampall of the New York Times, and is having an effect on the clothing retail business. Because teens have less money to spend on clothing, they are shopping around for bargains at some of the lower priced clothing stores such as Aeropostale and Bargains.

Teens are also looking for bargains in the form of coupons and discounts at the high end stores. Many are turning to online shopping rather than going to the mall.

They are aware that their parents have less money to spend and are finding innovative ways to acquire new clothing. The economic crisis is teaching teens to look for value and spend their money wisely.

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CIT Completes Tender Offer

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CIT announced that it had fulfilled its requirements to receive $3 billion dollars from its bondholders in order to avoid bankruptcy proceedings. This move enabled them to continue to provide factoring loans to retailers who need financing. This not only helped the company to stay in business, but helped many other businesses including the apparel industry and manufacturers who were at risk of bankruptcy themselves if they could not receive the financing that CIT has provided in the past.

Consumers Spending More Money

The Consumer Confidence Index rose during the month of July meaning that consumers are beginning to spend more money.

Along with this, the housing and auto industires are also showing signs of recovery. However, consumer spending is still low and if it does not increase, economists worry that the recovery may weaken next year.

Demand for product is tied to consumer income, prices of products, prices of substitute and complementary products, and the tastes of the consumer. The most influential cause of the decrease in consumer demand in this economic crisis has been loss of consumer incomes due to job losses.

With unemployment decreasing, although slowly, and consumers are finding opportunities to make money, consumer spending should increase.

Consumers gearing up for back to School Purchases

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There have been some interesting trends in consumer shopping habits which may help retailers prepare for the coming back to school and holiday shopping.

Scarborough Research reports that consumers are now opting-in to receive coupons via text messaging and e-mail
marketing because of the increase in the use of of cell phones and other personal communication devices. The typical shopper is an affluent, highly educated female between the ages of 18-24.

The National Retail Federation reports that shoppers are listing coupons as the motivating force for back to school shopping.

Perhaps this will have an effect on the economy this year. Since the only reason people buy is “value,” shoppers may find value in the coupons they receive.

CIT Bank Recovers – Consumers Still Pessimistic

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CIT Bank wrote a note to the bondholders for the remaining $1 billion it needed to repay a note this month and was ordered to review the salaries of managers to insure they were not too high, setting the company up for future failure. They also have to review their accounting practices.

So now, retailers will be able to stock their shelves with Christmas inventory since they will be able to secure factoring loans from CIT. However, the FDIC warns they are not out of danger yet. CIT pledged nearly all of its assets to secure the note – a very risky move for CIT.

However, in view of the reports of the economy showing signs of recovery, consumers are still saving money instead of spending it. In order for the economy to recover, there has to be a flow of money. Consumers are not optimistic about the alleged reports of the economy showing signs of recovery.

Economists say that consumers and businesses will not be able to secure loans for several years because of the extent of the collapse of the housing market and the credit crunch which the bankers have imposed.

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Morgan Stanley Advising CIT Bank

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Morgan Stanley is now advising “>advising CIT Bank in their efforts to restructure the company. Complicating the process is that CIT continues to purchase invoices for factoring, even though CIT cannot pay for them. One business was forced into bankruptcy because of this practice, called conversion. Small businesses are being encouraged to report this practice to the FDIC.

If you are looking for financing via factoring, this may not be a good time to secure funding from CIT. This is a very critical time for small buinesses and for CIT, who faces prospects of bankruptcy, if they cannot raise an additional $1 billion dollars on financing to stay in business.

Retailers Troubled over CIT Bank Financial Woes

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The apparel and furniture manufacturers are the two largest groups who will be directly affected if CIT does not recover from its economic woes. They are concerned that it may hurt their Christmas sales, as now is the time of the year when they make plans for Christmas profits. The leaders of the Retail Industry Leaders Association and the National Retail Federation are concerned and have written letters to Treasury Secretary Timothy Geithner asking his department to reconsider its decision not to provide support to CIT.

Small and medium business owners may have to explore other avenues of raising cash. They have traditionally relied on factoring, which involves selling their invoices for cash. CIT has provided the capital to purchase the invoices in the past.

LexisNexis Victim of Data Breaches

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LexisNexis, a reputable researcher for businesses, was recently the victim of identity theft as a person who was connected with a Mafia crime family has been charged with racketeering and having access to consumer records at the firm.

LexisNexis has warned its 13,000 consumers that their records may have been compromised. LexisNexis has been a victim of credit card fraud in the past. Because of these problems, the U. S. Federal Trade Commission charged the company with not doing enough to protect its records. LexisNexis was able to reach a settlement with the company.

This incident should make business owners aware of the necessity to protect the consumer’s information with secutiry software. Consumers are now seeking safe online transactions and are no longer willing to tolerate having their data breached. Those who take greater measures to protect the consumer will, in all likelihood prevail.