Increases in credit card interchange rates announced by Visa last week average only 0.6 percent, but the $36 billion in total interchange fees consumers paid in 2006 will probably increase close to 20 percent this year, the Merchants Payments Coalition said.

"The average increase in interchange rates doesn't tell the full story because it doesn't reflect credit card companies' efforts to move consumers to premium cards, the growing use of plastic, or the automatic raises Visa and MasterCard receive through inflation and increases in consumer spending"- Mallory Duncan, senior vice president and general counsel of the National Retail Federation and chairman of MPC, said. "Interchange fees are already taking too much money out of consumers' pockets. Visa and MasterCard should be lowering interchange rates, not raising them."

Interchange is a percentage of each transaction that Visa and MasterCard collect from retailers every time a credit or signature debit card is used to pay for a purchase. Most consumers do not know they are paying the fees because Visa and MasterCard do not disclose the charge. Visa last week announced that new interchange rates that went into effect April 14 would average 1.77 percent, up 0.6 percent from last year's average 1.76 percent. Increases in previous years have been similarly small, typically amounting to only a few basis points on each of the scores of rates offered for a different combination of cards, transactions and type of merchant. But Visa has been shifting many customers to premium cards that carry significantly higher rates and adding expensive new cards, and the new list showed at least a third of the 94 rates were above the average, with some as high as 2.7 percent.

While the increases in rates may look small, overall interchange collections have soared in the past half-decade. Visa and MasterCard collected approximately $36 billion in 2006, up 17 percent from 2005 and 117.5 percent since 2001, according to MPC estimates. Annual increases since 2001 have ranged from 15.8 percent to 17.3 percent.

"Visa and MasterCard would like consumers to believe that interchange is only going up a tiny fraction of a percentage when it's really going up in double-digit numbers and far faster than the rate of inflation or consumer spending," Duncan said. "These fees are ultimately paid by consumers, but working families can't afford these kinds of increases."

Given interchange's nature as a percentage of each transaction, increases in inflation and consumer spending give Visa and MasterCard automatic increases in revenues even without raising rates, Duncan noted.