A 4% Surcharge for Using a Credit Card?! Now Legal — but Not Likely

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Starting on Sunday, Jan. 27, retailers will be allowed to tack a surcharge of up to 4% onto your tab if you want to pay with a credit card. If that sounds like a lot, you’re right. Happily, though, it’s unlikely to happen very often. 

For years, card issuers have been making lots of money off so-called interchange fees. Until financial regulators and lawyers dragged this obscure term into general discourse, most people had no idea what an interchange fee is. (Still don’t? It’s the fee, typically about 2%, that a store pays your bank when you use a credit card at checkout.) For low-margin businesses like supermarkets as well as mom-and-pop stores that don’t have the clout of their big-box brethren to negotiate lower rates, these fees cut into profits in a big way.

But in a contentious legal ruling that is still being disputed, a U.S. District Court determined last year that merchants are allowed to pass along the cost of those credit-card interchange fees to customers. Consumer advocates say permitting surcharges is a slippery slope. “If a national sales tax of 2, 3, or 4 percent were being proposed, everyone would be up in arms,” ConsumerWorld.org founder Edgar Dworksy points out on his site.

But take a deep breath. You can avoid the fee by using a debit card, for one thing. And there are laws prohibiting these surcharges in 10 states: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.

Ultimately, though, consumer awareness will be the strongest deterrent against widespread credit-card surcharges. Stores have to let you know with a sign on the door if they’re going to add a surcharge — although they don’t have to tell you how much it is until point of sale, when you’re already at the cash register. And today’s retail landscape is hypercompetitive, so many stores will be hesitant to risk alienating customers by charging extra for using plastic.

(MORE: Today’s Young Adults Will Never Pay Off Their Credit-Card Debts)

As consumers, we don’t take kindly to paying fees for stuff that used to be free. Bank of America and other financial titans found this out the hard way in 2011, when they tried to impose fees on people for using debit cards and were forced to backpedal in the face of customer ire. “Customer feedback in New Zealand and Canada confirms that consumers are not willing to pay more for the same products or offerings,” an article about credit surcharges on American Express’s small-business Open Forum warns. In both studies the article cites, customers overwhelmingly rejected merchants that implemented surcharges.

If consumers respond in a similar fashion here — and there’s reason to believe they would — surcharges probably aren’t going to become common. There could be exceptions in markets where there’s little competition; we’ve seen airlines get away with piling on fees, for instance, because there are relatively few carriers out there for all the people who need to get from Point A to Point B. Consumer advocates also say online retail could become a hotbed of surcharges because these merchants only have to disclose a surcharge when they ask about payment method — a step that’s usually near the end of the checkout process. Advocates worry that shoppers will be too invested at that point to be dissuaded by the charge and will just suck it up.

(MORE: Why More Americans Will Fall Behind on Credit-Card Bills This Year)

Another possible outcome if stores start passing on interchange charges is that consumers might reduce their use of credit cards. That too would probably trigger a rollback of surcharges: stores and banks, after all, know that consumers spend more when they pay with credit cards instead of cash — up to twice as much, by some estimates. And if we do use cards, we’d probably use more bank-account or prepaid debit cards, which aren’t subject to the surcharge. In other words, we’d pay less in interest, which is good news for us but bad for banks. Earlier this month, banking expert Dennis Moroney told TIME that credit cards are a big profit center for banks. They’re not going to let that revenue stream plummet over what’s essentially a 2% or 3% annoyance tax.

In a new online guide to credit-card surcharges, watchdog group Consumer Action points out that different cards will have different surcharges, so customers will have to keep track of not only which stores charge them but also how much using each card would set them back. This sounds like a giant headache, but it’s something that could ultimately wind up benefiting customers. If surcharges become the norm, expect credit-card promotions touting low- or no-surcharge transactions to become part of banks’ marketing mix, similar to what we’ve seen with the gradual rollback of foreign transaction fees on many new card offers. No, it’s not as exciting as a rewards program that lets you earn cash back or a free flight somewhere, but those points, miles or what have you were never really free. They came at the expense of retailers and — by extension — you and every other customer who indirectly pays for those fees through the prices retailers set for their goods.

95 comments
ddarvish
ddarvish

while i don't agree with the surcharge fees one has to admit that taking identical stores except one of them does not accept credit  cards at all the other one does, which will do better. not only will consumers prefer to shop at the one with credi card but the avg $$ they spend is nearly double... that in itself should be enough reason for the retailer to not bitch and just pay the fee...

alacarte295
alacarte295

I understand the viewpoint of the consumer, which is a very strong argument. But the emphasis is being put on the business that passes on the surcharge. Meanwhile Visa and Mastercard are making billions on these interchange fees, with no pressure on them to reduce. And the small businesses are caught in the middle. Please don't forget - small businesses are the biggest source of employment in the country. It's Visa and Mastercard that are pissing on the consumer THRU the business, making billions in the process.

jodo3214
jodo3214

They may have the legal right to but by doing so they have broken the contract they signed with Visa etc. When a business does this to me I call the card issuer and place the surcharge  in dispute and refuse to pay the surcharge. Please boycott any business that does this whether a mom and pop or a gas station. Valero seems to take joy in doing this. One time when a business rang up my sale at a mom and pop apparel store of several items with a total sale of over $200. they added the surcharge and I refused to pay. I left all the merchandise on their counter and went next door and shopped. Please note mom and pops arer some of the most greedty businesses in the US. Never can understand why someone will pay $10 for something they can get at Wal Mart or Costco for $3.00.

mrh7184
mrh7184

Actually dealing with cash is a cost to the business as well. Companies spend a lot of money managing cash at the retail level.

1) You need a safe to store cash.

2) You need deposit slips and bags.

3) You have to pay a company to pickup/dropoff your cash deposits.

4) The company pays insurance for the balance of cash held. (Eg. If a store typically keeps $25,000 worth of cash in its safe, it insures this 25,000)

So basically, managing cash is expensive in itself.  Large retail stores rather accept credit cards over cash. It's actually cheaper and easier for them since the cost of the transaction is included in the price of the item, no one spends time counting cash, bagging, tagging, etc.

Chi
Chi

ARE YOU KIDDING? Not so bad?  In WA, This surcharge is being charged on DEBIT CARDS, not just credit cards.    ===ONLY 4%  HA!    ==COSTCO just charged 10% on our DEBIT card, debited IMMEDIATELY from our account.     ==When vendors charge 10% of a sale, or like the local gas station charged ten cents more per gallon of gas [already too high priced] for using debit card or credit card, or vendors that charge welfare recipients already barely subsisting, on their foodstamp debit cards, THIS surcharge is BAD.     There is NO way to excuse or explain it to make it right, especially in our poor economy.    ==Those who can least afford it, are paying most dearly.  ==This surcharge is going to do further harm to our economy, and particularly to smaller vendors.     ==WHO GETS THIS MONEY?  WHERE IS IT REALLY GOING? FOLLOW THE MONEY!!!!

raywater
raywater

It is just amazing how ignorant people are in understanding how Credit Card companies work. Credit Card companies get money from you using their cards and then they charge the business for using "your" preferred method of payment. They add rewards and pass on extra fees to the merchant and make it illegal for the merchant to charge you for this convenience.

It costs nothing extra to use cash. Nothing extra to use a check. 

But yet consumers are  still whining. "I want to use my card (that costs someone else money when I use it) and I dont want to pay for it WAH WAH WAH!"


BK
BK

I just wanted to point out to all of the small and large retailers who would even consider charging surcharges on credit card transactions because of this settlement, DON'T DO IT!  You will regret it in the long run when customers come up to the counter and give you an earlashing and walkout.  Not only will you not sell anything, but I will go purchase the same goods at another merchant/retailer that doesn't surcharge and never return to your store again.  Hence, you just lost a potential customer and income over a silly fee.  Bank of America is a perfect example of this and we all know how that worked out.  Consumers hate fees and it's a known fact that people who pay with credit spend twice as much.  I could really care less how much any business/retailer spends on interchange fees/yr, its the price you pay to run a business and keep customers coming back.  




DotMiller
DotMiller

My "Mom and Pop" retail store paid $15,335.00 in credit card fees last year, so the customer can have "rewards and cash back"  You as a customer would benefit getting a "cash discount"...start asking for one where surcharges are happening.

JohnDahodi
JohnDahodi

How the U.S. District Court determined 4% processing charges on credit card purchase? Who is the Court judge? Looks like he/she need to be removed from her post or send to the mental hospital for check-up and correction.

MarinaBoykis
MarinaBoykis

this is another #greycharge that shoppers are going to have to pay..billguard[dot]com

sltahoe881
sltahoe881

I would like to see stores giving a discount for spending cash equal to the interchange fee. That would get more people to spend cash. As it is, I have cash back cards so why not use them.

TerriGold
TerriGold

We're already paying for it. It's built into the cost of goods in most cases. It's just like "free shipping" that major retailers use if you spend over a certain amount. It's not free. But it does make me feel better. :-)

OleMikkelsen
OleMikkelsen

Great news! We're not in retail but commercial goods only. We've been seeing an increase in customers wanting to pay with CC instead of purchase orders only. Now we can finally consider charging the ones who insist on using CC, which to us is more laborious than a purchase order.

tmartinsocha
tmartinsocha

this means I am an owner of business that uses this fee.  Paying this fee makes me a partner in the business because I am buying shares of the company with my fees.  I will write thisoff as royalty and business owner of the company.


thecrud
thecrud

8 3/4 tax plus 4 percent to buy something I am guessing they just dont want me to shop.

So I will just let it sit in the bank. Just like rich people who are suppose to create jobs.

I have been buying directly from Chinese company's I got a TV mount that was 100 bucks here for 20 bucks there including delivery, did not take to long at all.

I  wonder if I can get dry and canned goods like this.

Will be looking for shoes and clothing too.

mack61
mack61

If you use a credit or debit card you are already paying extra. Businesses have already built in extra to cover these cost. If your paying in cash your paying a higher price because of people using their cards. It would be fairer to cash customers if card users were charged a fee or cash payers were given a discount. The Banks are the ones making out when it comes to credit cards don't blame the businesses.

StanleyKerns
StanleyKerns

That this would appear as an "ordered by the court" item is just another illustration (abet a good one) that in a democracy Big Money can buy as much government as it wants or needs.  The sad part isn't so much that our government is for sale--but how reasonably priced it really is.  And, of course, buyers cover all the expenses including the merchants cost of using a credit card--which illustrates the utter fallacy of businesses paying taxes--just where do you suppose that money comes from?  Right out of your pocket.  Business taxes are just a form of hidden income tax.

AnonoMouser
AnonoMouser

Even though it costs a couple of percent, payment by CC is also a convenience to the seller.  If they want charge the consumer for this, I'll go back to paying by cash and check.  Or maybe even try the new thing, which is to have it billed to my phone.

I run a small business and only accept payment via PayPal (which allows for payments by CC).  As a result I don't have to mess with handling CC numbers at all, I am protected against fraud, and have money automatically added to my bank account when purchases are made.  So it's worth every penny of the transaction charges that PayPal adds.  And no, I don't add this cost to my product prices any more than I do what I spend on office supplies; it's just another cost of doing business.


persuter1
persuter1

Who exactly doesn't know about credit card merchant fees? Seriously.

And stores already offer a cash/debit card discount in many places - this just switches it over to be a surcharge rather than a discount. This article seems like a lot of hot air about everything. 

jaysee
jaysee

Those rewards have to come from somewhere

Whitemart
Whitemart

Befoe reading this article, I was prepared to cancel all my cards.  I use them all month and then pay them off each month.  That way I don't hold lines up making out a check, I can separate business from personal expenses and get in and out fast.  Rest assured, I will ask the merchant before I make a purchase and if they respond in the positive, I will walk out and go elsewhere.  LETS START A MOVEMENT TO GET IN THE HABIT OF ASKING THE MERCHANT .  IF THEY SAY YES, TELL THEM YOU ARE LEAVING, THEN DO IT. THEY WILL GET THE MESSAGE QUICKLY.  I HAVE A CONCEALED WEAPONS PERMIT. WHEN SIGNS STARTED APPEARING AT MERCHANTS, I WENT IN AND TOLD THEM GOODBY.  WASN'T LONG BEFORE THEY CHANGED THEIR POLICY.  SOME EVEN SAID,WE NEVER HAD SO MUCH NEGATIVE FEEDBACK.

smas3141
smas3141

If passing along CC fees are not legal in NY. Why do gas stations have two prices for gas, one for cash and one for credit card? Most stations charge CC card prices when you use a Debit Card.

bishop07102001
bishop07102001

News outlets are not doing a good job explaining the change. The surcharge is not designed to be a revenue stream for the merchants. They are limited to charging their average credit card interchange rate over a set time period. Also, they must register the fee they are charging with Visa. This is not just a matter of slapping a sign in a window.

kipintuch
kipintuch

People listen! Credit card companies and merchants are already making too much profits. Now they want to pass on more fees to you? I say the hell with it. I pledge not to use my credit cards for at least a month and only pay cash.

beattyyz
beattyyz

Instead of paying the credit card surcharge, pay cash with $5 bills regardless of the total.  This way we're not trying to pick on any particluar retailer.  The retailer will be reminded of the costs and security associated with handling cash including paying clerks to count tills after closing (don't work for free please and I'm aware of bill counters), mid-shift change runs and mid-shift deposits because the till only holds so much, etc.  Keep in mind, there were benefits to paying with credit cards for both the consumer and retailer - you could look at this as a cash discount but I preferred the convenience of using my credit card.

rkthompson1982
rkthompson1982

If such surcharges are implemented, I doubt that the higher prices currently in place to recoup these costs will be subsequently lowered by retailers. Most likely this will result in a transfer from Banks to Retailers and not necessarily benefit consumers. 

MelStricker
MelStricker

Can't the fee be disguised in a 4% increase in the price of the merchandise or service.  Even though Florida (where I live) is not permitted to charge this fee, if you go to a gas station, I am charged a price per gallon depending on how you pay.  Use cash or the gas company's credit card and I pay a lower price per gallon.  So, to me this ruling is meaningless.

nooneimportant2013
nooneimportant2013

@raywater Thank you! You are absolutely right! It cost nothing to use cash... what is wrong with everyone nowadays that we have to put everything on a credit card.   We own a small business and have people come in and spend $1.50 on a card.... thats right one dollar and fifty cents! It happens a lot, and on those purchases it doesn't just cut into our profits, we go negative on those.

But even for larger purchases.... our profit margin is not as big as large stores, therefore 4% really costs us.  We ended up stopping taking credit cards all together.   With this new rule, we might consider taking them again (but not through a merchant service that rips us off).... and for all of you saying that it will just piss customers off and they wont shop here anymore.... the alternative is just paying cash or check, which they've been doing anyway.    If they really want the item, and insist on using credit, why should we have to pay for it.

mrh7184
mrh7184

That's the thing. Mom and Pop stores don't know how to accept credit cards. You factor the 2-3% fee in your product cost.  Ever hear of COGS? I bet most people don't.

And when a cash paying customer wants a discount, you offer them 1% off. It's not much, but they'll be happy. And if you marked it up 2%, you still made an extra 1% profit.

KoryJoyner
KoryJoyner

@JohnDahodi  The fees merchants pay (I know, I'm one of them) is up to 4% (typically), hence the 4% limit.

mrh7184
mrh7184

I agree, I bet the cash discount would give me better rewards than my stupid 1% cash back on the credit card.

mrh7184
mrh7184

EXACTLY! So many people don't get it!

persuter1
persuter1

@thecrud If you used (or could use) a credit card to buy directly from the Chinese companies, you still paid the credit card merchant fees. Way to not understand anything. 

persuter1
persuter1

@AnonoMouser Uh, that doesn't make any sense - all costs of doing business are added to your product prices, unless you're simply not trying to be profitable. Transaction charges of any kind in particular are generally counted in cost of revenue. 

RayvenB
RayvenB

A LOT of people are unaware that businesses get charged to take credit cards.  When we started informing people, in order to encourage cash use and create informed consumers, I was amazed by how many people were completely unaware of this fact.  We are a small, family owned/run retail business in a highly competitive market (alcohol sales), so we are forced to absorb the costs instead of passing them on to consumers in the form of price raises.  The cost of taking credit cards definately hurts our business.

bishop07102001
bishop07102001

@smas3141 Because they are giving you a "cash discount" - not charging an additional fee for using a credit card. It's stupid, I know, but that's how they got around the rules before.

persuter1
persuter1

@ronrule lol, that is not double-charging in the slightest. Assuming that the basic premise of the free market is correct, product prices will go down when people remove the surcharge due to competition. If one store keeps rolling in the merchant fees and still charges you 4%, their competitor is easily going to be able to win business from them simply by cutting their prices. If you want to talk about double-charging, how about the fact that the credit card fees are currently built into the price you pay *whether you pay with credit card or not*?

persuter1
persuter1

@kipintuch I assume the fact that merchants will make more profit off of you if you pay cash is escaping you, right?

LawrenceAnthonyJones
LawrenceAnthonyJones

@beattyyz  absolutely! Nothing like knowing that you get pick pocketed or lose your wallet and all you need to do is make a phone call or two to cancel cards out. Cards are SOOO much easier for both merchants and customers alike. BANKS should make the concessions. BESIDES banks are MAKING money from interest charges as well. No matter how you look at it, we the people will pay in the end anyway as business will inevitably raise their operating costs and pass to consumers. The law that should have been passed is that credit card companies should NOT charge a fee for business to utilize their services. BANKS!

JiminyChristmas
JiminyChristmas

@beattyyz Good points!  Also, people usually pay more with credit cards than with cash...which also benefits the merchant.  The question I have is, if consumers start footing the interchange fee directly, will the merchants reduce the price of merchandise by the same amount, say 2%, since the interchange fees are already reflected in the price of goods?  I doubt it.  In other words, we will soon be "double-tapped".

CarmenLeung
CarmenLeung

@nooneimportant2013 @raywater it still costs money to use cash. There is risk of armed robbery for the cash in the till. Then there is the hassle of depositing into the bank everytime a customer writes a cheque. And beware the nfs fees if the cheque bounces. And then you have to hunt the customer down and get them to write you another cheque or pay you in cash. More time wasted.

mrh7184
mrh7184

You pay for it in the cost of the merchandise.

So basically, the customer will now pay the SAME PRICE for the item that already had those fees factored in, and is now being charged an additional ~4%!!! That's robbery to a consumer.

persuter1
persuter1

@RayvenB Just to note - the biggest place I can think of that offers cash/debit card discounts is Spec's Liquor here in Texas. They offer a 5% discount (effectively a 5.62% surcharge), which is I believe higher than your normal merchant fees, which means they're likely making *more* profit on credit card payments. :) It works well, too, because their prices after the cash discount (which they put in advertisements) are lower than their competitors, since of course their competitors are adding in the merchant fees and Spec's isn't. 

Regardless, it sounds like the ability to charge your customers a credit card surcharge will help your business. 

ronrule
ronrule

@persuter1 @ronrule Your last sentence is exactly my point - the fee is already built into the price whether you pay with a credit card or not, so any merchants who now start passing fees along separately are double-charging the fee.

persuter1
persuter1

@JiminyChristmas Why do you doubt it? It's pretty much a basic premise of capitalism that the market will find the lowest prices of goods. Why would stores fail to compete on this aspect of prices? How would they do it, for that matter? 

persuter1
persuter1

@ronrule Oh ffs, the first four sentences of my post answer that. The fee is currently built into the price, so if stores can separately charge the fee, the price will go down. Honestly, you answer the post a month later and you don't even bother actually replying to what I said?