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Gas Stations’ Profits Hurting: Should Congress Intervene?

This article was written by in Economy. 8 comments.

A recent article on CNN Money described the woes of independent gas station owners. The increasing cost of a gallon of gasoline results in less profit thanks to the processing fees credit card companies charge the merchants. I can appreciate that doing business in this type of environment is tough.

With gas prices soaring to a national average of $3.76 Wednesday, according to motorist group AAA, those credit card fees add up to an average of 7.5 cents per gallon – taking away nearly 83% of gas stations’ fuel profits.

Most gas stations earn their bigger profits on items purchased in the attached convenience store and mechanic services. Gasoline is a loss leader. Everyone needs it, and many gas stations are willing to take even a slight loss on gas as long as they continue to make profits elsewhere.

The credit card companies don’t accept the blame. For example, Visa says the processing fee they charge their gas stations is set by the large oil companies.

The Electronic Payment Coalition (EPC), a group representing credit card networks and financial services organizations, said it’s impractical for card companies to negotiate with every single gas retailer. So, it said, gas station owners should put pressure on their parent oil companies to negotiate a better fee.

To compete, some gas stations are charging customers who use a credit card more than a customers who use cash. Apparently, they’ve found a way to avoid breaking the credit card companies’ rules by calling this a “cash discount” rather than a “credit premium.”

I don’t know what the real difference is, and the only effect it’s had on me is switching to another gas station. The main problem is when gas stations advertise their cash price without disclosing (until the nozzle is in your car) that you will be paying more if you use a credit card.

To help solve some of these problems, both for the consumer and the independent gas station owner, Congress is suggesting fixing the maximum rate that credit card companies can charge merchants to accept their cards through a bipartisan bill in the House, called the Credit Card Fair Fee Act. Congress will set up a committee who will define what rates the credit card companies can charge merchants.

Will this solve the problem or is it unnecessary meddling in a free(ish) market economy?

Published or updated May 14, 2008.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 4 comments… read them below or add one }

avatar 1 Anonymous

It’s interesting to note that the price spread between regular and premium gasoline has shrunk as prices have gone up. It’ used to be a 25-30 cent difference, and now it’s 20 cents or less.

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avatar 2 Anonymous

I believe Visa is the only card company that does not let merchants pass fees down to customers.

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avatar 3 Anonymous

@ Francis: It is illegal to pass on credit card fees to customers. The loophole being that they could raise prices on everything and then give an X% discount for paying with cash.

@ article:
Congress should absolutely not intervene! This is a classic case of a free market situation that will be resolved naturally. If gas station owners are truly getting pinched, they can raise their prices to add to their personal profit share. They also have the option of refusing credit card payments or collectively re-negotiating terms. If nothing is done, some gas stations may close, which would reduce local supply and allow other stations to raise prices in accordance with demand. Congress will only manage to create additional unforeseen or undesired consequences with new legislation.

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avatar 4 Anonymous

Government needs to keep their noses out of the market. They do nothing more than screw it up even worse than the “problem” that they try to fix.

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