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Checkout fee questions answered

By Janna Herron · Bankrate.com
Wednesday, January 30, 2013
Posted: 4 pm ET

I'm getting a lot of questions about a class-action lawsuit that has allowed retailers to charge people a checkout fee if they use a credit card.

The questions come after a provision in a preliminary settlement between retailers and Visa, MasterCard and major banks went into effect on Sunday. The provision allows merchants to recover the costs they are charged to accept credit cards.

Here are four common misconceptions or questions over the new credit card surcharge.

1. Are debit cards subject to the checkout fee?

The checkout fee only affects credit cards, not debit or prepaid cards under any circumstances. Even if the retailer runs a debit card as "credit," the credit card surcharge doesn't apply to you, according to Trish Wexler, a spokeswoman for the Electronic Payments Coalition. The EPC is a trade group that represents Visa, MasterCard and other card payment networks.

2. Who profits from the surcharge -- the banks or retailers?

Retailers who impose a credit card surcharge cannot profit from the fee under the settlement. The fee can only reimburse the cost the retailer is charged by Visa, MasterCard and the banks to run a credit card, called an interchange fee. Typically, stores pay between 1.5 percent and 4 percent of the total purchase each time a customer uses a credit card. Now, if retailers choose, customers will pay for their ability to use a credit card at the store. The extra fee goes to Visa, MasterCard and the banks. However, most retailers already have accounted for the interchange fee in the price of their goods and services and shouldn't need to surcharge to recoup costs, says John Ulzheimer, president of consumer education at SmartCredit.com.

3. My gas station has long charged more for credit card purchases. What has changed?

Retailers, including gas stations, have long been able to offer cash discounts to customers who pay by cash, check or PIN debit cards, Wexler says. Retailers offering cash discounts typically post two prices, one for cash and one for credit cards. Cash discounts are most commonly seen at gas stations and liquor stores.

"A cash discount would have been a fair way for retailers who wanted to steer their customers to other forms of payment," she says. "With surcharging, however, an argument can be made that retailers are double dipping. After all, these fees are already built into prices."

4. Who is charging this checkout fee?

You tell me. National retailers aren't saying what they'll do. I haven't seen any announcements about implementing this credit card surcharge. In fact, several major retailers such as Wal-Mart, Target and Home Depot are opposed to the settlement that provides the option to surcharge. There is some confusion over whether retailers that operate in states that ban surcharging can, at the same time, impose a surcharge in states that allow it. Read more about that in Tuesday's post. The EPC, MasterCard and the attorney for the retailers in the settlement case all say that retailers can impose surcharges in states that allow it, even if they operate in other states that don't. The National Retail Federation says they can't. Maybe that's one for the courts to decide.

Follow me on Twitter: @JannaHerron

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168 Comments
Small Business Owner
February 01, 2013 at 5:44 pm

As a small business owner, we provide the option to pay with a credit card as a convenience to our customer and typically do not charge more per transaction. Our average sale per customer is around $50 so it's a minimal discomfort when the merchant services company takes their cut of our profit. We do however have another business that deals with much larger transactions (typically in the thousands) and we offer a cash discount much like they do at the gas stations,we were advised that it has always been legal to offer a "cash discount", but not legal to charge a specific fee for using credit. We have recently implemented a 1.5% surcharge for credit card transactions, which is about half of the normal rate we pay to the merchant services company. I'm willing to give a little, but not give all. It's a mutually beneficial and convenient solution, and most of our customers haven't had any issues with it.

Priscilla
February 01, 2013 at 5:25 pm

I have had a small business operation for 7 years. I was told I could not charge more for those who use credit cards. So, I don't. The fees charged by the merchant account are enormous compared to the small amount that I gross with credit cards. It is insane! Then there are compliance fees in addition for 4 months of the year. I am really close to going cash or check only. I figure at lease 3 customer service encounters per month goes directly to the credit card merchant and the card companies. This is a personal service that I provide, so it really is 12 and 1/2% per month. Large retailers can get better terms, so they can be a 5% or less.

Matt
February 01, 2013 at 4:41 pm

I read the original blog/post Janna and I think there is a slight error in the text........... In point #2. you state, "The extra fee goes to Visa/MasterCard and the banks". I am not sure, but i think that is incorrect. The 'extra fee' goes to the retailer/merchant who owns the store, not Visa/Mastercard. On to another topic...It is true that merchants have allready added some amount of card processing costs to the cost of items they sell so I think they will probably not be too quick to add this 'surcharge' to tomorrows pricing. Competition will prevail, probably why Wal-mart and Home Depot were against this being part of the settlement. It was a bargaining point that had no advantage if agreed to/won.

paul b
February 01, 2013 at 3:38 pm

Everyone( major companies ) are always looking for a way to make more money. Now with all their documented profits on selling items they want the credit card charge refunded by the customers. What's next a charge to simply walk in their stores? What a joke

Jabba
February 01, 2013 at 3:30 pm

Retailers already have built into the cost of the merchandise they are selling the 1.5%-4% fee that banks and credit card companies charge them. So, they really are making more money and not just covering the expense with this added sur charge. This is a really bad law for the consumer.

vonnie carpenter
February 01, 2013 at 2:45 pm

they dont need to charge any more fees for using your credit card . companies allready make to much off of the consumer as it is. it needs to stop here and now.

jerry626
February 01, 2013 at 1:48 pm

Must the establishment inform you of the possible charge if you use your card?

Tom
February 01, 2013 at 1:29 pm

If surcharge happens it will do nothing but to convince people to shop more online (I doubt they will charge the surcharge how would you pay cash to them.) If this becomes common practice that is all it will do. I advise to everyone to make sure that your local place isn't charging the fee and if it does tell them to keep the items in your cart and leave. (Let them pay someone to put the items back.)

liz
February 01, 2013 at 1:15 pm

Walmart has long been holding double the money spent if using a debit card Reading Pa. store

Tina Morris
February 01, 2013 at 1:10 pm

I would not shop in stores that charge a surcharge for using a credit card. The banks are getting a little out of hand.