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Interchange Irony: George Mason University Edition

posted by Adam Levitin

George Mason University law professors Todd Zywicki and Joshua Wright have been the leading (and almost sole) academic defenders of the current interchange fee system.

So how's this for irony:  Zywicki and Wright's own employer announced that it will no longer accept Visa for tuition payments because interchange fees are too high.  (You'll have to watch a 15-second BP propaganda bit before the video on GMU).  The school doesn't want other students or taxpayers footing the bill for rewards programs.  Antiregulatory ideology runs deep at GMU, but clearly it won't get in the way of a real world business decision.  

Note, btw, that GMU was able to opt-out of taking a particular card network (somehow the other networks are permitting a convenience fee to be tacked onto the tuition bill to cover interchange).  Universities are in a rather unique position of being able to refuse to take cards altogether.  For most merchants, taking payment cards is just part of operating in the modern commercial economy.  

Comments

I believe visa's contract makes it difficult for many universities to charge convenience or separate fees when using different payment methods.
ave
Universities and government's should not get a free pass around interchange fees if they want to accept it while merchants have less of a bargain.

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Visa has much more stringent rules related to charging convenience fees as compared to the other card associations. One of the most problematic for organizations such as GMU is that they aren't allowed to charge a percentage based convenience fee - rather they must charge a flat fee.

This wouldn't be a problem if acceptance costs were a flat fee, but because they are a percentage of the sale and the amount of the charge to the credit card can vary so much with tuition payments, it is very difficult to charge an appropriate convenience fee to cover the acceptance costs.

As a result, many governmental agencies and universities simply opt not to accept Visa as a payment choice.

Why should the government surcharge and the merchants, I believe government has a unfair advantage, are private colleges and universities allowed to surcharge, do they surcharge for items purchased in the school, or are items included in the tuition such has meals, events, subsidized?
Visa does have rules, sam's club does not take visa and neither do city colleges in new york. GMU is a public unversity.

GMU may to deal with less of employee theft of checks or not, but they don't have to worry about bounced checks for tuition since its not a traditional good or service. You have to pay a tuition, enroll, and cannot graduate or get transcripts without it, unlike retail where employee theft, hot checks, accounting across multiple stores, float time, is an issue thus its about big retail wanting things without paying for them, of course this does not mean that big retail is bad, your local me merchant can be just as nasty or not be competitive price-wise and not offer services you want as a large retailer, hence small business interchange may subsidize big business rewards, which is a debate.

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