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Credit Card Surcharge Fees: Why You Shouldn’t Worry

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As of Sunday, retailers can now levy a surcharge on consumers who use credit to make their purchases. The surcharge, up to 4% of the transaction, has consumers up in arms. But should we worry that this is another profit grab? Not necessarily.

How the surcharge works

Credit card networks – Visa, MasterCard, American Express and Discover – charge retailers a fee every time a customer uses a plastic card bearing their logo. Debit cards command the lowest fees, while high-end rewards credit cards command the highest.

Retailers can now pass this charge through to customers, with caveats:

  1. The pass-through cannot be more than what the networks charge the retailer
  2. The surcharge cannot exceed 4%, even if the retailer pays more than that
  3. Some states prohibit credit card surcharges, so the new charge is illegal there*

How the surcharge came about

The reason that you may now pay an additional fee is that retailers – from mom and pop shops up to Target and WalMart – sued Visa and MasterCard for collaborating to set these fees artificially high. The fees – known as interchange – are often a large burden for small merchants.

As part of the 2012 settlement, ending an antitrust case that began in 2005, retailers can now pass this cost onto the consumers who incur them.

Few stores will actually implement surcharge

However, very few stores are likely to take advantage of this new surcharge:

  1. The cost of interchange is already baked into prices. Merchants have lived with swipe fee costs for years, so they are already reflected in current prices.
  2. Consumers prefer higher prices and no fees. Just as LL Bean and others offer free shipping but charge higher prices, consumers think more favorably of stores that offer one comprehensive price than a lower, more a-la-carte pricing style.
  3. Risk of backlash is greater than in 2005. With the rise of social media, the first store to levy a surcharge is likely to see a public, vocal consumer backlash reminiscent of Bank of America’s ill-fated debit card surcharge.

Why surcharges are more equitable than high prices

Currently – and as long as retailers include swipe fees in their prices – cash and debit users subsidize credit card users. We all have higher prices, but credit card users earn rewards, benefits, and flexibility in payment. This system is highly regressive, as credit card users tend to have higher incomes. A surcharge would actually help end this subsidy – but it’s unlikely to happen on a large scale.

States that ban credit card surcharges

  • California
  • Colorado
  • Connecticut
  • Florida
  • Kansas
  • Maine
  • Massachusetts
  • New York
  • Oklahoma
  • Texas

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  • BigD

    Any merchant/retailer that charges a surcharge with this new change will indeed meet backlash and loss of business. I agree with the viewpoint of this article that it’s nothing to worry about. BOA is a perfect example!

  • Blau Tim

    I’m going to sue my cable company they cannot charge me more than 100.00 dollars per month, if its more its on them

  • BigD

    The problem I have with this settlement is that it’s anti-consumer. People use credit cards for convenience, security, and even the reward perks at times. We live in tough times and people even charge to make ends meet to make it to the next paycheck. Let’s be realistic here, we live in a cashless society today. Do you remember the last time you ever went into a store and purchased something expensive in cash, I don’t?? I don’t disagree that the interchange/swipe fees need to be negotiated on and fair for both parties, but don’t penalize consumers by putting the burden on credit card users. Yes, all retailers factor in these fees into their prices and those that pay cash help subsidize those that use credit. Is that fair, probably not but this is the way it has always been. Retailers are not going to lower their prices anymore just to give you a cash discount. It’s a known fact that consumers hate extra fees when purchasing goods and people who pay with credit spend twice as much. How is that a bad thing? No ecommerce business would have any presence in the marketplace without credit card use. Notice how American Express is exempt from this settlement. They strictly forbid retailers from surcharging their customers and several states forbid it as well. You want to piss off your loyal customers and lose business, don’t surcharge!

  • Patrick Tyrus

    most used to just not allow card purchases for under $10. The issue I have is when a merchant says “due to higher fees”. Sorry, but your fee’s have not gone up. They have or should have gone down. If not contact your processor and ask for lower rates, or switch. This whole lower rate thing is why we see less rewards at our banks. Remember the banks got part of the fee that the processor charged, and you got free checking accounts if you used your card at least 6 times a month. That went away, they charge us for low balance checking accounts, and now it looks like both ends are looking to charge for card usage. I may be going more cash based after all. Wasn’t this supposed to be a boon to retailers no runs to the bank, lower fees, easier to use for the consumer at your store, less actual robbery theft. (Of course merchants look at your card less than ever.)

    • Patrick Tyrus

      actually, I take that back. My merchant provider just told me that there is a new $2 monthly fee for being able to take Visa cards. That could be $75 or more per terminal if you have a lot of terminals. (sounds like a typo… what ever happened to the economy of scale. But hey, kinda nice for the small guy)