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Beyer: Credit cards fuel higher gas prices

Ronkonkoma resident John Clemente did not notice that

Ronkonkoma resident John Clemente did not notice that the gas price for credit was a dollar more, paying cash instead at this Mobil station in Hauppauge. (March 13, 2012) Photo Credit: Newsday/J. Conrad Williams, Jr.

Kevin Beyer is the president of the Long Island Gasoline Retailers Association.

 

Plenty of attention has been given to the peculiar practice of a few Long Island gas stations that charge customers $1 per gallon extra for the privilege of paying with a credit card. But while consumers are understandably upset, their anger is misdirected. It's the credit card fees that are creating the problem, along with a rogue corporation that owns several stations.

To be clear, it's against the law to charge customers who pay by credit card more than you charge customers who pay cash. It is legal, on the other hand, to offer a discount to your cash-paying customers. That's an important distinction. Cash-paying customers shouldn't have to subsidize the costs incurred by gas-station owners when customers pay by credit card, which is exactly what would happen if the stations charged a single price for a gallon of gas, as many have suggested.

Simple math best explains the situation. Say the profit margin on a $4 gallon of gas is 20 cents. If the consumer uses a credit card, then up to 3 percent of that purchase -- 12 cents per gallon -- goes to the company that issued the card. That would leave 8 cents for the station owner, even though the owner takes the risks and deals with the issues of running a small business. Many banks also charge a flat 25-cent transaction fee on top. These charges add up: Last year, my one gas station in Smithtown paid out $70,000 in fees to credit card companies.

According to a study by the Lundberg Survey, a market research company that specializes in the petroleum industry, gasoline retailers paid credit card companies an average of 9.2 cents per gallon purchased by credit card in 2011. This is up from 3.4 cents per gallon in 1995, and even 7.1 cents in 2010. Compounding this problem for retailers is the fact that credit card use for gasoline purchases is also way up. In 1990, only 27 percent of gasoline consumers paid with plastic; in 2010, it was 60.

Further exacerbating the situation is the reality that as the price of gas goes up, so does the credit card companies' take -- even though the service they provide is the same. Factor in New York State taxes of $0.314 cents per gallon, the federal government's take of $0.183 per gallon and the various other fees that add more than 60 cents to the cost of a gallon of gas sold on Long Island, and you quickly understand that the station owner is far from the front of the line when it comes to making money on these transactions. Gas retailers can mark up the price only so much as the cost per gallon increases, because consumers can pay only so much -- and there's always the competition across the street.

It is only fair, then, that credit card companies be limited to how much they make per transaction.

Rather than hold news conferences in service stations railing against price gouging, as Sen. Charles Schumer (D-N.Y.) did earlier this year, or offering the other knee-jerk responses we've been seeing from local politicians -- such as requiring more signage or forcing the cash and credit price to be the same (which would just cause an increase in price) -- our elected officials should go after the banks and credit card companies. Put pressure on them to eliminate the percent-of-price fee and adopt the practice of charging a flat fee per transaction only.

For a station owner to charge a dollar a gallon for the use of a credit card is indeed outrageous. The attorney general should look to see if it falls into price gouging, and consumers should exercise their right to pull out of stations that they think charge too much.

But if all the attention on this one corporation's business practice helps the region understand where our outrage should be directed -- and results in reforms that benefit consumers and service station operators -- then it may have been worth the aggravation.

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