A Scrooge of a credit card fee

During the holidays, many of us spend money on gifts and give generously to charities. What most people don't know is that credit card companies take a big bite out of all those dollars spent.

I head the Hispanic Institute, a nonprofit that depends on online donations to survive. When we started accepting contributions from credit cards, we found a lot of money going out the door. Given the work we've done to find out how consumers are impacted by other products, we decided to look into these credit card fees.

We just completed a report with University of Pennsylvania economist Efraim Berkovic. What we learned is disturbing. The fees charged by most credit card providers for merchants to use their cards are driving up the purchase price of many products.

Everyone - even low-income people who are unbanked and must pay with cash - pays more to cover these fees. The result is a huge wealth transfer from poor to rich.

While all of us pay higher prices as a result of credit card fees, higher income Americans tend to get a little back in the form of card benefits, like airline miles. In fact, the top 10 percent of earners get more than $350 million in credit card frills every year, according to our report.

Low-income Americans generally don't get these frills. Yet every year the lowest 50 percent of earners pay an extra $670 million in higher product prices as a result of these credit card fees. In turn, those fees go to finance benefits for the wealthy.

By hitting low-income people, credit card companies are hitting minorities especially hard. Hispanic Americans make up nearly 19 percent of the lowest 25 percent of earners in this country, and only 9.5 percent of the top 10 percent. African Americans make up more than 21 percent of the lowest 25 percent of earners and less than 5 percent of the top 10 percent.

The bottom line is that hidden fees rig the credit and debit card system against minorities - even those who are unbanked and are shut out of all the benefits of that system.

This is not just true because high income people spend more money. Our study controlled for spending and still found a huge wealth transfer. Lower swipe fees resulted in lower prices while higher swipe fees resulted in higher prices - retailers' profits stayed the same regardless of the level of the fee.

As you buy gifts and give to charity this holiday season, keep in mind the way credit card companies take from the poor and give to the rich - all the while skimming their share off the top. I guess for the credit card industry, it's far better to receive than to give.