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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
Glen
July 21, 2012 at 9:27 am

Bill

The point was that merchants can and should figure the cost of accepting credit cards as a cost of being in business. If they can't figure the cost into their profit margin then they are poor business people and more than likely won't last too long.

If they refuse credit cards then will they also refuse checks? How many "bad checks" will they take before they go out of business, or refuse to take anything but cash? And how long do you think they will continue in business as a "cash only" business?

If they want to refuse credit cards that is their perogative. But then you have people, like me, who are just stubborn enough to go to a little trouble to prove a point. If I hand a clerk a $1.00 coin, where, in his register, does he put it? A $2.00
bill? And he better recognize it as legal tender because he does not have the right to refuse it in payment.

You are correct in that a merchant can request payment other than a credit card, or a check, but not U.S. currency (legal tender).

I use a credit card for several reasons. It is convenient for me. It provides me with an itemized list of my expenditures; helps me when I file taxes; and, because I'm sort of lazy, allows me to write 1 or 2 checks a month instead of many checks.

So if a business wants to add a surcharge for me using a credit card, that is their decision. My decision is that I will not frequent their business. I can probably get whatever it is I'm buying on-line, and cheaper! No sales tax (as of yet), usually free shipping, and I can use credit cards freely.

ROGNA
July 21, 2012 at 4:18 am

When using a credit card, you can be billed the extra costs as it is built into each product.
When buying in a store, it is inconvenient to charge different prices as some items do not have enough margin to mix in with items that do have enough margin. So online shopping should increase as they can mark up individual items.

Bill
July 20, 2012 at 11:57 pm

I am trying to figure out what Glen's point is he was trying to make.

You said: What is the cost of a law suit for refusing legal tender compared to the cost of accepting credit cards without a surcharge.

Were you referring to the coin as legal tender they refused ?
I believe it is now legal to ask for a different form of payment or decline the card completely.

I can't imagine a lawsuit over something legal. I'm sure it wouldn't be the first time!

Bill
July 20, 2012 at 11:39 pm

Linda,
I have seen signs similar but they said 5% not $5.
Five percent just covers the different fees the processor
gets removed from their bank account for each transaction.

Glen Yates
July 20, 2012 at 11:35 pm

Sue

Maybe to you. But my wife and I retired at 55, don't have a mortgage,no car payments, and pay off our credit card bills every month. We make over $6,000.00 a month in retirement and have enough in investments to add another $3,000 a month if we want to. Ignorant? Maybe, but I'll take that over stupid anyday!

What did I say that made you reach that conclusion? Or is it that you also don't know that those are all coins that are still legal tender, and, as such, must be accepted by merchants?

Bill
July 20, 2012 at 11:29 pm

mary brook,

Nobody " wants" to pay a fee. That should be obvious to most.
The fees are not figured in all retailers prices, some do but not all. We do not build it in the price in any way. Retailers are strapped against the wall with this pitiful economy.
The margins are slim and like it was said earlier that the difference in profit was signicant when comparing C/C to other forms of payment.
You don't have to do business with the merchants that charge the fees. Don't buy from them. If one dollor added on a $25 purchase
is that critical to you then go somewhere else and shop.
I haven't seen a gas pump that did not charge more for fuel when on C/C. How are you gonna get fuel ?
Hope you dont get your drivers licence in
Michigan. Up until now the offices have not accept visa and mastercard for payment due to the fees. So if you live in Mi. you cant't get fuel or a drivers licence.

Me
July 20, 2012 at 11:19 pm

SkySky...I agree.

I have seen $10.00 minimum signs pop up in my local area for card transactions (debit/credit). One of them told me it's $0.70 per transaction that they are charged...

The banks are going to gouge everyone how ever they can. It's a fundamental of their leadership.

Jack
July 20, 2012 at 10:58 pm

Stores will see a BIG drop in people buying stuff at stores, and only a slight increase in online buying. This will hurt the economy badly, stores will have-to lay-off cashiers, stock people, and close alot of stores. Production will suffer. Ultimately, I see stores cutting their own throats by doing this.

Linda
July 20, 2012 at 10:12 pm

Today my husband and I started to go into a local business in Elkhart and there is a sign on the door "there will be a $5.00 minium fee for any Visa, Master Card or Discover credit or debit card used" Guess where we didn't go,is that even legal?

Skysky
July 20, 2012 at 9:30 pm

Merchants and banks need to remember that without the customer, there aren't any transactions - cash or credit.
~~~
If banks and merchants discourage debit and credit transactions by gouging the consumer with fees, it might be a blessing in the long run. Many people will return to using cash on principle and having to go to the bank for cash will discourage impulse shopping and unplanned purchases. Not a bad thing in the long run.

The transaction fees have been around a long time and are part of the overhead. Offering a cash discount is reasonable but charging to use a debit or credit card makes as much sense as charging for the cup to hold your coffee or the plate to put your meal on. What next, charge me to turn the lights on while I shop or require me to bring my own flashlight? While it's true that the banks have been making big money on the transactions, it's up to the merchants to factor the costs into their overhead - along with all their other costs.