- 13 -
Credit Card Fees as Payment for Services
Petitioner's credit card program provides benefits for both
merchants and cardholders. Processing of the sales drafts
involved merchant aspects and cardholder aspects. Transactions
could be for either convenience users or cardholders with
revolving balances. The merchants, the convenience users, and
the revolving-balance users all were served by the operation of
this integrated system. It is difficult to apportion the
benefits of the plan to its specific users.
Petitioner derived its income from its credit card program
from four sources: The merchants paid through the merchant
discounts. Merchant banks (banks other than the subsidiary
issuing banks) paid through the interchange fees. Cardholders
with outstanding (revolving) balances paid interest for the use
of that credit. All cardholders were charged the annual fee, and
the amount of the annual fee was the same regardless of credit
line, amount charged, or the amount of the outstanding balance,
if any. It is similarly difficult to match any particular type
of income with particular services performed by petitioner. See
supra note 5.
Nevertheless, cardholders paid annual fees and received
services. All cardholders were issued at least one plastic card
each year and had the right to use that card, subject to
cancellation by petitioner at any time. However, if petitioner
cancelled the card, it refunded the annual fee on a pro rata
Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 NextLast modified: May 25, 2011