The 7-year fight between merchants and credit card companies over interchange fees on credit cards has finally been resolved. A settlement was reached on Friday that gives retailers a little over $6 billion in a lump sum payment, plus a provision for lower fees that plaintiffs’ lawyer say will save them an additional $1.2 billion. The relevant news for the rest of us is that the settlement gives stores something they’ve been seeking for a long time: the right to charge customers more if they want to pay with a credit card.
Previously, agreement merchants had to sign with payment network processors prohibited charging credit-card users more money. But now now retailers have the legal go ahead to do so. Things are about to get interesting.
The retailers’ pro-surcharge argument is that these fees will let them pass along the cost of credit cards only to credit card users. Without the ability to do so, they say they have to raise prices for everyone, which isn’t fair to customers paying cash or using another form of payment.
Edgar Dworsky, founder of ConsumerWorld.org, disputes this assertion. “The big worry, of course, from a consumer perspective is that merchants won’t lower the price of goods which already have the costs of extending credit built into them, but will instead collect another two or three percent from shoppers on top of it,” he says. This could cost Americans $25 billion each year, he asserts.
Interchange fees tend to run about a couple of percentage points of the total purchase price, although the fees on some high-end rewards cards are higher. The Wall Street Journal quotes one plaintiff who says he might tack on a 2.5% or 3% surcharge to credit customers’ bills.
This doesn’t necessarily mean Americans will be resigned to a two-tiered payment system. Stores won’t want to risk losing business to competitors that don’t charge extra fees, so there’s likely to be a period of watching and waiting as the big retail giants feel each other out.
Dworsky also points out that 10 states currently have their own laws that prohibit credit card surcharges: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.
It’s unlikely that any changes will be made to merchants’ pricing policies until early next year, after the details have been hashed out. The settlement does specify that they will be capped, but that doesn’t satisfy advocates like Dworsky. Although debit interchange fees were capped last year, “There is little evidence that prices have fallen or that discounts are being widely offered,” he says.