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Retailers to charge credit card fees?

By Claes Bell, CFA · Bankrate.com
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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202 Comments
anibeth
July 20, 2012 at 6:05 pm

I will never pay with cash, but I will continue to pay either with my credit card and debit card, Why? I personally feel safer if I pay with the debit or credit card and I wouldn't have to be intimidated by street people I even run into daily. Also, people who carry more cash are more likely to be hassled by panhandlers or by thieves.

Tami
July 20, 2012 at 5:57 pm

I don't like to carry around cash so I will not be doing business with merchants that charge me a fee to use my credit cards.

Henry
July 20, 2012 at 5:44 pm

Some retailers will experiment, but in the end, they will do what is most profitable. Whenever or wherever a carge for credit card use puts a chill on sales in a competitive situation, it won't be used. Most consumers are savy - if they have a more cost effective option, they'll use it whenever they perceive it exists.

Richard
July 20, 2012 at 5:44 pm

As owner of a retail company where customers expect for a price match on large dollar items taking a credit card will often cause you to loose money on the item purchased. Annually we pay out $75-$100,000 in credit card fees, many years this has been more than I make in a salary or show as a company profit combined. It is a real expense that small business have to contend with daily , I have been in business for over 30 years and the problem has gotten bigger each year .

Mixhael Wisper
July 20, 2012 at 5:42 pm

Come on! Everyone should be aware of how much retailers mark up the cost on their goods, so what's their complaint? The fee is part of the cost of doing business, which I'm pretty sure they write off as such on their tax returns, yes? What's next, ask their customers to "chip in" a bit on each purchase for rent and utilities? Why not add on a "salary surcharge" while they';re at it, and have us pay for their labor too? Please! I KNEW there was a good reason I do most of my shipping online wherever possible! You know the old adage: If you can't stand the heat...

Bob Ward
July 20, 2012 at 5:36 pm

as a small business owner who is trying to keep prices down and overhead and watching banks make billions of dollars of profit every year by using surcharges as an answer to make more money it is insane to ask us to line their pockets more and more lets start carrying cash and start putting a hurt on their wallets and i have not lost one sale by not accepting credit cards and business is growing

mary brook
July 20, 2012 at 4:59 pm

Why would someone want to pay a fee for using their charge. The fee that merchants are charged by the credit companies are incorporated into the overhead in the product. I would not buy from a merchant who charged me, and rethink whether I really needed the item.

Bill
July 20, 2012 at 4:48 pm

Michelle,

I like how you don't mix words ! Tell em' like it is !
You go girl !

Bill
July 20, 2012 at 4:45 pm

Miducuast,

AMEN ! Transparency, We post it, say it verbally at the point of every transaction , and wait for the , O.K. from the customer.

Carol
July 20, 2012 at 4:41 pm

HEre's a thought .... how about plain old cash, remember, money, dollar bills, change