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Retailers to charge credit card fees?

By Claes Bell ·
Monday, July 16, 2012
Posted: 3 pm ET

Retailers have long grumbled about the 1 percent to 5 percent out of every credit card purchase they have to pay banks to process the transaction, also known as "swipe fees." But soon they may have a powerful new weapon to encourage customers to pay with lower-cost methods such as debit cards or cash: a credit card surcharge.

Under an agreement announced Friday, MasterCard, Visa and 13 of the nation's largest banks will pay retailers $7.25 billion to settle a class-action lawsuit alleging they conspired to keep swipe fees for retailers high. That's big money, to be sure, but the biggest news for consumers is that the settlement requires Visa and MasterCard to modify several long-standing rules, including one prohibiting merchants from charging a surcharge to pay with a credit card.

From the press release issued by the retailers' law firm, Robins, Kaplan, Miller and Ciresi.

The modification of these network rules will provide additional value to merchants of many billions of dollars by enabling merchants to provide greater transparency to consumers regarding the cost of using various types of payment methods, and permitting merchants to negotiate collectively over interchange fees and other aspects of their relationships with Visa and MasterCard. It is expected that the reforms required by the settlement will enable merchants to put pressure on Visa and MasterCard to limit or reduce interchange fees, among other things.

"The reforms achieved by this case and in this settlement will help shift the competitive balance from one formerly dominated by the banks which controlled the card networks to the side of merchants and consumers," states K. Craig Wildfang, who led the case for the Class Plaintiffs as co-lead counsel and partner at Robins, Kaplan, Miller and Ciresi L.L.P. "Over time, the reforms induced by this case and in this settlement should help reduce card-acceptance costs to merchants, which in turn, will result in lower prices for all consumers."

Unfortunately for consumers, the "greater transparency" means a fee, noted on the receipt, up to a "maximum surcharge cap" that will be negotiated regularly between the merchants and the processing networks.

It's hard to imagine large national retailers such as Wal-Mart or Target will impose a credit card surcharge on cardholders. To my knowledge, none of them have taken advantage of previous revisions of the rules that allow things like minimum purchase amounts for card users and cash discounts.

But it's very possible that smaller businesses such as gas stations and convenience stores, some of whom have taken advantage of previous rule changes to encourage the use of cash, will start adding a surcharge.

And while Wildfang and retail industry trade groups predict the change will ultimately result in lower retail prices for consumers, that's far from clear. During the fight over the debit-card swipe-fee cap contained in Dodd-Frank, the retail industry made similar predictions. But nearly a year later, it's hard to get good data on what effect, if any, lower debit swipe fees have had on retail prices. Results of research on what direction prices have moved since then have tended to vary depending on who funded the study.

However, it's almost certain that if retailers end up paying less to process credit cards, credit card rewards programs will suffer. Banks use a portion of their swipe fee revenue to fund the programs, and if it declines in a big way, they'll likely become much less generous with rewards. After swipe-fee caps on debit cards were put in place, it became much harder to find debit card rewards programs, and most that remained offered limited benefits.

What do you think? Should credit card users pay a fee for the privilege?

Follow me on Twitter: @ClaesBell.

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July 27, 2012 at 6:42 pm

I an not adverse to it, but I used to ask retailers if they would give a discount for cash. I never heard yes. I just assumed that they added the cost of using credit cards to the retail prices.

Frank Mc
July 27, 2012 at 5:40 pm

Just a note that all costs always wind up with the (user of the card)consumer. Whenever any business, including national and local government cannot pass a cost onto the consumer it goes bankrupt. That is one of the major problems with healthcare, people think someone else is paying the bill, when in actuality, they are

July 24, 2012 at 4:52 pm

There is a plus/minus to this discussion. I can sympathize with merchants AND the banks. I pay for everything with a debit card or cash. I would hate to not use my debit at the pump when paying for fuel at a gas station/convenience store. Other than that, the only thing that I worry about is losing or having my wallet stolen. As the article states, I hope the smaller merchants are given the opportunity to negotiate with the banks in reducing their rates. (maybe through some kind of consortium).

July 24, 2012 at 10:09 am

It's so sad to see how dependent everyone has become on credit cards. We're lazy. There should be fees for laziness. Go back to the old fashion belief of living within your means and pay with cash. Consumer's have choices, use them. If there are legitimate costs involved for the parties involved in the transcations (i.e. banks and retailers), and they choose to share them with the consumer, that's their choice. As a consumer, you have a choice not to use that method of payment. Shop elsewhere if it's that big of deal to you, and if and when, the banks and businesses suffer the consequences of added fees, they will come up with a new plan to regain your business again. Seems like common sense to me.

July 24, 2012 at 3:18 am

Our Indian Banks started marketing "Credit Card" so aggressively, that anyone in the age bracket of 28-60 holds a Credit card. Now a days, it is common to see a household, hold more than 3 credit cards. Citi Bank, Standard Chartered Bank and HSBC have spoilt our people. Everyone seems to use credit card these days. We pay Surcharge as high as 3% and we are unable to pass on the cost to customers because of local laws. It is the customer who enjoys free grace period upto 50 days. It therefore makes sense that he should share burden of Merchant fees, because he is a credit/loan product to pay for the product. If I don't provide Credit card payment facility, I stand to lose business to competitors. All I expect is the Merchant fees should be rationalized and the customer should share the fees.

July 23, 2012 at 10:37 am

Make no mistake, the banks are the pigs out there. All of these fees and not one human hand touches the transaction. It is all done electronically. And if a person actually does get involved, its some Indian person that can't even speak the language that the bank is paying in a week what a low wage earner in the US makes an hour.

July 21, 2012 at 7:47 pm

Why do you all have it in for the retailers like we are ripping everybody off? We are just trying to make a living. I have a bookshop. For a book marked $9.99 I pay $6 to the supplier. I then have to sell the book at 20% discount to try to hold my own against Walmart, Amazon, Kindle etc. So why should Visa get 70c out of the $1.99 that I make on the book. I have overhead, mortgage, taxes, insurance, payroll, air-conditioning, advertising etc etc to pay out of that $1.99 also. Where do you figure I should figure credit card processing into the cost? The price is written on the product so there is no room to adjust. It seems everyone on here wants to give all their business to the internet, but when they start tacking on a credit processing fee you'll want to go back to your local shops and, and you'll wonder why they aren't there anymore. If you have a problem with paying credit processing fees for the convenience of using your credit card, take it out on the credit-card companies, not the retailers.

July 21, 2012 at 7:34 pm

My Wife is a Merchant and accepts Credit Cards. There is a cost to her business for the machine and the company that provides it. She has accepted this as a cost of doing business,
Now the other fees start! AMEX has their fee to the Merchant while M/C & Visa have theirs. They are all different. If someone has changed their card to a Rewards Card the fee to the Merchant goes up again. The Merchand will not know until their bill comes in.

I know these Credit Card businesses cannot work for free but I believe the costs should go to the users of the card and not the merchant. Let the cards compete for the consumers business. Let the Consumer decide to use the card or cash until this is sorted out.

I choose cash. It is cheaper for me and it saves the Merchant the fees.

Anyone that thinks they get something for nothing from a Rewards Card needs to look further.

Elizabeth Taylor
July 21, 2012 at 12:39 pm

Banks charge a fee for debit transactions, credit cards charge a fee, what about credit/debit cards? The only people that win are the institutions and the lawyers that are settling these disputes. Whatever happened to us going cash-less?

July 21, 2012 at 11:06 am

It is important to remember that swipe fees have many components. There is the transaction fee itself which doesn't escalate with the amount. Then there is the rewards programs fees, then there are fraud costs, then of course bank profits. I think we may see chain stores offering consumer loyalty programs. If a regular customer comes to the same store weekly presents ID and uses debit card with no rewards, the consumer should pay very little.