Pain at the Pump

Congress Gave Gas Retailers $1 Billion Annual Subsidy

Consumers Aren’t Seeing a Penny of Savings

New research finds that gas retailers are saving $1 billion annually* at the expense of consumers thanks to the Durbin amendment which capped what retailers pay to accept debit interchange beginning in October 2011. According to the US Energy Information Administration, nearly 134 billion gallons of gas was sold in 2011.  Approximately 48 billion gallons were purchased using debit – the type of payment impacted by the Durbin amendment, which reduced rates by about 70% for this category.  However, there continues to be no evidence that retailers are passing along savings from this windfall – even at gas stations, where debit is the overwhelmingly most popular form of payment.

According to new research by Phoenix Marketing International, half of all non-cash payments for fuel are made with a debit card (36 percent of all payments including cash), making it overwhelmingly the most popular payment choice at the pump. “For gas station purchases, consumer preference for debit cards has increased substantially over the past several years – at the expense of cash, checks, and credit cards,” explains Greg Weed of Phoenix Marketing International.  The research among 5,166 consumers reporting on recent gas stations purchases found that the debit card share of both transactions and dollars was higher than any other payment method.  “Among households with income of less than $50,000, debit card share of gas station transactions was twice as high as that of credit cards.”

Retailers promised to pass debit savings on to consumers. By comparing the costs per gallon and the interchange rates for debit and credit purchases[1], consumers can use our Debit Discount for Gas Calculator to determine the amount of savings retailers should be passing on to them at the pump.

Congress transferred $1 billion directly to gasoline retailers and in return, convenience store merchants who sell gas raised prices, demanded more revenue and attempted to deflect blame toward the industry that provided them with the convenience of electronic payments from the beginning.

The convenience store industry is now fabricating myths about how interchange fees impact gas prices.  Following are a few important facts surrounding the cost of payments for consumer gas purchases.

THE FACTS

• Debit – which carries price controls on card acceptance fees – is the number one payment choice for fuel purchases. More than one-third (36%) of transactions at the pump are made using a debit card, with the second closest payment choice being cash (28%) and credit card (26%), according to research from Phoenix Marketing International. Given that Congress capped debit card interchange fees at around 23 to 24 cents, gas stations are only paying around 1 to 2 cents per gallon on a $50 – 75 tank of gas. This is roughly 70 percent of what they were paying six months ago in debit interchange fees – with no evidence of lower prices as a result.
• Several years ago, Visa and MasterCard each voluntarily capped or lowered interchange fees for card transactions on fuel sales. This has resulted in millions of dollars in savings for gas retailers, and has helped them to avoid almost entirely any fluctuation in fees resulting from changes in the price of a gallon of gas.
• There is nothing prohibiting gas stations from offering their customers a discount for paying with cash. The Truth in Lending Act (15 USC § 1666f) specifically allows cash discounts. Additionally, card network rules allow retailers to offer discounts for all other forms of payment.
• Many gas retailers that offer cash discounts have been investigated by state attorneys general for taking advantage of the “cash discount.” They instead falsely advertise the lower “cash discount” price on their signs without indicating that the price is higher for credit or debit – the overwhelming payment choices for fuel.
• Last month in New York, Senator Lee M. Zeldin, Chairman of the New York State Senate Consumer Protection Committee, announced he will introduce legislation to protect consumers at the gas pump. “I am concerned that some gas stations on Long Island are getting away with charging consumers as much as $1 per gallon more for credit card than with cash. Moreover, the deceptive advertising that is happening is outrageous and has to stop,” said Senator Zeldin.
• The real problem for convenience store and gas station owners is the business model. In today’s marketplace, a convenience store operator makes more selling beer, candy or cigarettes than they do on a gallon of gasoline. This is why many are offering discounts for cash – luring customers into the convenience stores to buy items with huge mark-ups.
• And according to the National Association of Convenience Stores, the reason convenience stores have seen an increase in the total amount they pay for card acceptance is because of volume – not rate increases. “The overall increase in average annual gas prices led to a significant increase in the use of credit cards at the pump. NACS estimates that 60% to 70% of all motor fuels purchases are now paid with plastic, but that figure can climb to as much as 90% of all transactions when prices are climbing.”
• Convenience store gas retailers make more money by accepting debit and credit:
• Saves labor costs by enabling stations to employ fewer attendants
• Reduces opportunities for theft and protects stations from fraud
• Enables stations to meet consumer preferences to pay at the pump
• Allows more customers to be served through faster transactions
• Guarantees stations get paid

[1] Estimates based on data from leading payment card networks.