Credit card surcharges now allowed
Extra fee allowed starting Sunday, but retailers hesitate
For more than seven years, Mitch Goldstone has been fighting for the right to charge
his customers extra for credit card transactions.
Begining Jan. 27, merchants such as Goldstone gained that right. Under a federal court case settlement, they can put surcharges
of up to 4 percent on Visa and MasterCard transactions -- which account for
about 70 percent of credit card purchases -- to cover the cost of card interchange
fees, or "swipe fees."
But few merchants plan to
use their newly won right -- not even Goldstone.
"It's going to be used as leverage against credit card companies," the
president of ScanMyPhotos.com explained. "Just knowing that merchants can
(surcharge) will keep them from raising rates."
Goldstone, whose company
digitizes old photos, is a lead plaintiff in an antitrust lawsuit that pits retailers
against Visa, MasterCard and major card-issuing banks. The swipe fee rule that took effect Jan. 27 is one
part of a preliminary settlement; the other part, a $7.25 billion cash payout
to retailers, faces final approval later this year.
Expect no surcharge surge
Although the surcharge
represents a big change in the rules of retailing, the reality at most checkout
lines -- and at e-commerce companies such as Goldstone's -- will probably
remain unchanged, at least for now, according to retail experts and card
networks. Merchants can use the threat of surcharges as bargaining leverage,
but most of them don't want to irritate customers with an actual fee, industry
"While there can always
be exceptions, merchants in general have no intention of surcharging,"
said Stephen Schatz, spokesman for the National Retail Federation. Some retailers including Target
have issued statements denying plans to charge extra for card use.
There are other hurdles. Laws prohibit the surcharge in 10 states that represent about 40 percent
of the population. In addition, the rules governing retailers who also take
American Express, which is not covered by the settlement, make it more
difficult for merchants to impose surcharges.
Visa, MasterCard ask surchargers to register
Retailers are supposed to
register with the card networks in advance if they intend to charge the fee.
However, representatives for Visa and MasterCard would not comment on the
number of retailers that have signed up. Visa referred all questions to the Electronic Payments Coalition, an
industry group that said it lacked surcharge registration data. At MasterCard,
spokesman Jim Issokson said the company considered the information proprietary.
Generally speaking, "We don't expect a lot of merchants" to
surcharge, he said.
NEW RULES AT THE REGISTER
Starting Jan. 27, 2013, merchants can charge you extra for paying by credit card. This marks the second big change in card rules in two years, coming on top of the Durbin Amendment, which was mainly aimed at debit cards but also affected credit card transactions. Here is a review of what can now happen at the register.
What merchants can do:
Charge you extra for paying with any MasterCard or Visa card, up to 4 percent initially.*
Offer discounts for paying with cash, check or debit (PIN).
Impose a surcharge for paying with a particular type of MasterCard or Visa.*
Require a $10 minimum for credit card purchase.
What merchants must do:
Disclose any credit card surcharges in signs at the entrance and near the register.
Detail the extra fee on your receipt.
*Except 10 states where prohibited: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.
Sources: Electronic Payments Coalition, court documents
That said, there are roughly
7 million merchants covered by the settlement, so consumers somewhere will
likely pay more to use their credit cards.
"I have not heard from
any retailers that are looking to jump into it at this point," said Jeff
Lenard, spokesman for the National Association of Convenience Stores, "but
there are 90,000 (stores) out there."
Without firm data, consumers
don't know whether or where surcharges will pop up. Some convenience stores
were quick to offer discounts for using debit cards after the Durbin Amendment to
the Dodd-Frank Act made that easier, so this sector is one to watch for credit
card surcharges. Convenience stores have long said that swipe fees take a
substantial bite out of their skimpy profit margins.
Australian surcharge precedent
Other experts say surcharges
are likely to pop up first in noncompetitive sectors. That's what happened in
Australia, which started allowing surcharges in 2003. "Initially, it was
hotels, airlines and then some taxi and utility companies," said Edgar
Dworsky, former Massachusetts assistant attorney general in consumer protection
and founder of ConsumerWorld.org, an Internet consumer research guide. "As the fees became accepted, they extended to
An analysis published by Australia's central bank found that surcharges were slow to take hold in the retail sector, but they gradually caught on. By the end of 2010, more than 40 percent of the largest merchants imposed an extra fee for card use, according to the analysis, with the typical surcharge being about 1.9 percent for Visa and MasterCard transactions.
However, some merchants charge much more. Taxis routinely add 10 percent to a customer's bill if they pay with credit. The high rates have sparked a backlash resulting in new rules that will allow credit card companies to impose limits on merchant surcharges, effective in March.
One argument for the
surcharge in the U.S. is that consumers can opt for cheaper payment methods, holding down
the cost of transactions and putting pressure on card networks to cut
interchange costs. Under the new rules,
merchants can impose higher surcharges for higher-cost cards such as reward
cards. That in turn could focus pressure
on the popular card offers.
Some consumer advocates see
this as a potential benefit for consumers overall. "Cash customers are providing miles and
other rewards to credit card customers, and that is wrong," Edmund
Mierzwinski, consumer program director at U.S. Public Interest Research Group,
said via email.
Consumers loathe card surcharges
The threat of surcharges could
be a potent negotiating tool for retailers. In a CreditCards.com survey, 65 percent of Americans
who use credit cards said they would pay another way if any fee was charged.
Others said they would balk at card use depending on the size of the fee.
The credit card side disputes
that consumers would see benefits stemming from card surcharges, threatened or
actual. Retailers could end up "double-dipping,"
said Trish Wexler, spokeswoman for the Electronic Payments Coalition. "Retailers have built fees into their
cost of goods -- if they're going to surcharge, I would hope they would lower
their prices across the board." The group, which represents the card
networks and issuing banks, has set up an information site for consumers called checkoutfees.com.
SEE A SURCHARGE?
Have you spotted a surcharge on credit card use at checkout? We would like to hear about it. Email us at
Consumer Action, a San
Francisco-based advocacy group, is providing an informational pamphlet about
the fees. "At first, it may be confusing for customers," says Linda
Sherry, the group's director of national priorities.
Retailers are not entirely
behind the settlement either, raising a question of whether it will receive final
approval. Several retail chains and industry groups have filed objections,
saying that the settlement would lock in overcharging by card networks and
protect them from future legal action over swipe fees. An objection deadline is
set for May 28, with a fairness hearing for the settlement scheduled in
* Correction: As originally published, this article misspelled the name of Mitch Goldstone's photo digitizing business. See the CreditCards.com corrections policy.
See related: Debit card swipe fee debate pits banks vs. merchants, U.S. Senate fails to delay debit card swipe fee restrictions
Published: January 25, 2013