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5 Important Things for Consumers to Know About the Credit Card Fee Settlement

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Last Friday MasterCard, Visa and some major banks announced an agreement with a group of retailers on the issue of interchange fees (also called swipe fees). In summary, retailers will be allowed to add a surcharge when customers use their credit cards. According to this Reuters article (hat tip Pearlbrown):

The settlement, if approved by a judge, would resolve dozens of lawsuits filed by retailers in 2005. The card companies and banks would also allow stores to start charging customers extra for using certain credit cards in an effort to steer them toward cheaper forms of payment.

For those who use credit cards for cash back benefits, the credit cards may become less profitable. It's too early to know how many stores will add surcharges. Hopefully, competition will encourage stores to avoid adding these new charges.

I reviewed several articles on this agreement, and I put together the following list of some important aspects of how and when this agreement will affect consumers:

  1. The rule changes on surcharging likely would be implemented in early 2013 (Visa's press release)
  2. In states where the law currently prohibits credit card surcharges, merchants will not be able to pass on the cost. These states include New York, California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma and Texas (Consumerist.com)
  3. Consumers can only be charged checkout fees for credit card usage. Merchants cannot charge customers for the use of their debit card (Electronic Payments Coalition)
  4. Retailers who add the surcharge must post a fee disclosure to the consumer at the point of entry, point of sale and on the receipt (Consumerist.com)
  5. Merchants are only allowed to assess a fee that is equivalent to what they pay to accept credit cards – which in the U.S. is typically between 1.5%-3%. (Electronic Payments Coalition)

It's nice to see that consumers in 10 states (including the 4 largest states) won't have to worry about these new surcharges due to their state laws. However, you have to wonder if this can hold up to lobbying efforts of the retailers.

Also, it's nice to see that these new surcharges won't apply to debit cards. That's important to reward checking accounts. The interchange fees help pay for the high interest rates of those accounts. These might not have directly affected the banks' ability to offer the rewards, but it could have made it less appealing for consumers to use debit cards.


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Comments
37 comments.
Comment #1 by Anonymous posted on
Anonymous
Does anyone know if "Autopays" to credit cards for utilities, cellphone etc. will have a surcharge on them now?  I could not find that in the article.

5
Comment #2 by me1004 posted on
me1004
Anonymous: This is NOT a law that calls for a surcharge. This was a contractual matter of the credi card companies barring the merchants from adding a surchage. That contactual clause is no longer valid under this settlement. 

Whether any merchant adds such a surcharge will be up to the merchant -- so whether it will apply to your automatic payments will be determined by the individual merchant with whom you are doing that. Some will choose to apply such a charge, some won't.

As for thee states that have a state law barring such surcharges, I'll tell you rihg tnow I have no hope of California keeping it as Califonria lawmakeres they are the biggest buch of sell-outs around. 

I also note, surcharges for use of credit cards were barred by federal law until just a couple years ago. My own opinion is that that bar should be put back in place. For one thing, if a merchant thinks the cost of accepting a credit card isn't worth it, they don't have to accept credit cards! That is, they choose to accept them only if they make more money that way -- so what are they complaining about!? This is simply an effort to get it coming and going. The idea of a cashless society is being undermined here. And that means more trips to the bank to get cash, and more cash in people's pocket will only mean more incentive for street robberies. 

8
Comment #3 by pearlbrown posted on
pearlbrown
Ken, thanks very much for staying on top of this issue and pulling together information from a variety of sources.  Your efforts in providing a comprehensive picture of the impact this settlement will have on consumers are greatly appreciated.

11
Comment #4 by Anonymous posted on
Anonymous
I was always of the impression that the big box stores (and probably most retailers) set their prices to include swipe fees.  In other words, most customers were already paying the swipe fees regardless of what form of payment they weere using.  So, does this settlement mean that customers will now be paying 1 - 3% less for paying cash? I doubt it.

6
Comment #5 by Dana posted on
Dana
With so many people buying on-line these days; this makes me wonder just how they will determinw where the transaction takes place. IF the 'payment processor' for an on-line merchant is in a state where they CAN assess a surcharge (New Jersey for example); but the customer resides in a state that BARS the surcharge (like New York); can the nerchant still add it?

4
Comment #6 by pearlbrown posted on
pearlbrown
Dana#5, my best guess would be that the surcharge would follow the buyer, just as sales tax does.  In other words, regarldess of where the online retailer is located, I am charged taxes at my local rate. The details are probably still being worked out, or may not be ready to be published. 

3
Comment #7 by Anonymous posted on
Anonymous
Ken, you fail to mention the most important part:
This settlement is valid for the next 8 months only, after that period it will automatically revert to the old fees, unless negotiated again between the merchants, banks, visa and MC.
You also failed to mention that American Express, discover and other private brands are not part of the settlement.

7
Comment #8 by Anonymous posted on
Anonymous
I spoke to a couple of my autopay merchants and they are not certain they will assess a charge at this time.  I was told they prefere it when people autopay to credit cards because they know they will get their charge on time and they would not want people to go back to using checks etc.  So it will be a waiting game to see what actually happens when the charges go into effect.

4
Comment #9 by Anonymous posted on
Anonymous
Do merchants pay the banks processing fees if customers pay by checks?  Checks take much more time and probably money to process than credit cards.  Now they want us to go back using checks instead of credit cards if I don't want to pay for the extra fees?  I just don't get it.

3
Comment #10 by Anonymous posted on
Anonymous
Re #2 States currently banning credit surcharges

New York's ban is moot. "Cash Discounts" are allowed. Gas stations are notorious for gouging with this tactic.

6
Comment #11 by Squeezer @Personal Finance Success (anonymous) posted on
Squeezer @Personal Finance Success
This really irks me.  If a merchant was unhappy with credit card fees, why not just stop accepting credit cards?

2
Comment #12 by Anonymous posted on
Anonymous
@ Anonymous #9:

Possibly a service charge per check deposited.

1
Comment #13 by Anonymous posted on
Anonymous
No charges for debit cards?  Is that true for both credit & debit transactions?

1
Comment #14 by Anonymous posted on
Anonymous
This change is a god send for the check printing services.  Back when I was growing up, most payments were either in cash or check.  Credit was rarely used by only a very few.  This will reduce the volume of payments through the major networks like VISA and MasterCard.  The trend towards a cashless society will be a much more distant goal.

1
Comment #15 by pua posted on
pua
This is all a plot by the postal workers union.  The idea is to make us stop paying with credit cards, including recurring monthly charges, so we have to start sending checks through the mail.

4
Comment #16 by Anonymous posted on
Anonymous
#15  I would agree with you but isn't there a way we can pay with a check using the computer?  That wouldn't help the postal service.

4
Comment #17 by Anonymous posted on
Anonymous
I am surprised at how easily people lose proper perspective.  Any time an arbitrary restriction is removed, it is good for the society, unless a social good can be attached to the restriction.  In this case, forcing "cashless" society without any consideration of cost does not appear to me to have any social good attached to it.  Let the cost of each mode of payment determine the choices without forcing anyone to do anything against their self-interest.  People who argue that merchants should just not accept credit cards if they can't live without surcharging for credit card usage should remeber that one could easily argue--that people who do not like surcharging merchants should simply not use them.

I like my credit card rewards as much as anyone else, but I can also see clearly that it distorts the incentive system in a socially non-productive way.  Just my 2 cents as a Chicago Ph.D. in Finance and decades of experience in Finance industry.

5
Comment #18 by WE BUILT 'DIS CITY (anonymous) posted on
WE BUILT 'DIS CITY
The problem is that credit-card customers dislike knowing that non-credit-card customers are getting a "discount."  so most merchants just charge one price for everybody, meaning that cash, check & debit customers subsidize credit customers.

Under the new policy, however, nobody subsidizes anybody (at least not significantly), since extra costs pass directly to those who cause them (which sucks for us credit-card users).

Additionally, we can stop worrying about a resurgence is check usage, as checks are grossly inferior to debit cards.  Just remember to tell your financial institution that you want all overdraft-causing transactions DECLINED.

3
Comment #19 by Anonymous posted on
Anonymous
What happens if you use your debit card but use it as credit, and not the pin numbers??? Would that also be unaffected by this change??

3
Comment #20 by flat broke (anonymous) posted on
flat broke
i had the same thought as the above post.

since reward checking accounts require you to use the "credit" option when purchases are made with your debit card,,,, then wouldnt the new agreement potentially destroy or severely damage reward checking accounts?

1
Comment #22 by 51hh posted on
51hh
The major difference between a credit card and a debit card is the the latter pull money directly from a checking account (or an established  fund resource in the case of gift card) on the purchase.  Selecting credit without pin or selecting debit with a pin has nothing to do with this major difference.  A debit card is a debit card no matter the credit option or debit option is selected.

My take is that there should be no extra fee for debit care usage, period.

1
Comment #23 by 51hh posted on
51hh
Correction on #22:

"... no extra fee for debit "card" usage, period."

1
Comment #24 by Anonymous posted on
Anonymous
I'm sure I will be spending less now.

1
Comment #25 by me1004 posted on
me1004
No prices will be cut for users of cash because of this. This is NOT being done to lower prices for anyone; it is being done to RAISE prices. That's because prices were never raised for this fee. The reality is that prices always have been and always will be set at the very highest a merchant can get a customer to pay while still having enough sales volume. That will not be affected by any fees or other costs a merchant has.

This action to split the prices, one for cash and one for credit card users, is working on the expectation that people who use credit cards will be willing to pay even more for the convenience of not having to keep going to the bank for cash. This is based on a presumption about the kind of people they are, as opposed to the kind of people cash users are -- that cash users are more opposed to paying extra simply because of their nature or circumstances, but credit card users tend to be people who have more money and are more willing to spend freely and to pay higher prices. Without splitting the categories, the merchants find they have to default to the lower price cash users are willing to pay or lose too much sales volume.

If this issue were simply about recovering the fee, then the settlement would have had to include cash users paying with debit cards, which also carry a fee.

This is just the simple law of supply and demand, and prices are determined by that, not by some credit card fee or other costs. That overhead merely determines how much profit a merchant makes, not what price they can charge.

You will not be seeing any lower prices because of this -- you will merely see prices indicating a lower price for cash payers or a higher price for credit card users -- but the cash payers will be paying as much as they ever did.

1
Comment #26 by Anonymous posted on
Anonymous
What will this do to all the purchasers who buy products over the internet and pay with a credit card?

I wonder if that will have any effect on on-line sales.

1
Comment #27 by Anonymous posted on
Anonymous
I use pay-pal for all online purchases, anonymously and safe.

If a merchant do not accept pay-pal system I use pay-pal credit card and it is the best method to buy onlune or in some B&M stores.

1
Comment #28 by Anonymous posted on
Anonymous
But will there be a possible extra fee of 1.5 - 3% tacked on for using a credit card # for on-line purchases?

1
Comment #29 by Anonymous posted on
Anonymous
"But will there be a possible extra fee of 1.5 - 3% tacked on for using a credit card # for on-line purchases?"

yea, small, online merchants are likely to add a credit-card surcharge, especially for tax-free transactions that are technically taxable.

1
Comment #30 by Anonymous posted on
Anonymous
No prices will be cut for users of cash because of this. This is NOT being done to lower prices for anyone; it is being done to RAISE prices. That's because prices were never raised for this fee.

THIS IS NOT ABOUT LOWERING PRICES FOR CASH CUSTOMERS.  THE PURPOSE IS TO PUT VISA/MC IN THEIR PLACE & LET MERCHANTS PASS ON THE COSTS OF DEALING WITH CUSTOMERS WHO COST MORE TO SERVE THAN OTHERS.

The reality is that prices always have been and always will be set at the very highest a merchant can get a customer to pay while still having enough sales volume.

FALSE....LOSS LEADERS, INTENTIONAL UNDERPRICING FOR MEDIA BUZZ, INTENTIONAL UNDERPRICING FOR AN INROAD TO OTHER HIGH-PROFIT ITEMS (CHEAP PRINTER, EXPENSIVE TONER), INTENTIONAL UNDERPRICING TO KILL OFF COMPETITION OR TO KEEP IT FROM INCREASING, ETC.

That will not be affected by any fees or other costs a merchant has.

WHAT? MERCHANTS DON'T CONSIDER FEES WHEN SETTING PRICES? EVER HEAR OF COST-PLUS PRICING?

This action to split the prices, one for cash and one for credit card users, is working on the expectation that people who use credit cards will be willing to pay even more for the convenience of not having to keep going to the bank for cash.

THIS IS 2012.  WE'VE GOT OTHER OPTIONS BESIDES CASH (CHECKS & DEBIT CARDS). THE PURPOSE IS TO SEE WHO CARES ABOUT AN EXTRA FEE & WHO DOESN'T.  WITH A BAN ON CREDIT-CARD SURCHARGES, MERCHANTS MUST LEAVE MONEY ON THE TABLE.

This is based on a presumption about the kind of people they are, as opposed to the kind of people cash users are -- that cash users are more opposed to paying extra simply because of their nature or circumstances,

but credit card users tend to be people who have more money and are more willing to spend freely and to pay higher prices.

SOME ARE, BUT SOME AREN'T.  HOW DO WE FIGURE OUT WHO'S WHO? ADD A SURCHARGE.  PRICE SENSITIVE CREDIT-CARD USERS WILL SWITCH TO ANOTHER PAYMENT METHOD.  THE NON PRICE SENSITIVE WILL CONTINUE TO USE CREDIT & EAT THE FEE.  A THIRD CATEGORY OF PEOPLE WOULD ORDINARILY SWITCH, BUT WON'T BECAUSE CREDIT-CARD REWARDS COVER THE SURCHARGE.

Without splitting the categories, the merchants find they have to default to the lower price cash users are willing to pay or lose too much sales volume.

TRUE, NOW MERCHANTS CAN FIGURE OUT WHO CARES & WHO DOESN'T.

If this issue were simply about recovering the fee, then the settlement would have had to include cash users paying with debit cards, which also carry a fee.

THAT FEE IS REALLY SMALL, THOUGH. PLUS, IF WE SURCHAGE DEBIT CARDS, THEN PRICE-SENSITIVE CREDIT USERS MIGHT STOP BUYING (WHO WANTS TO VISIT ATM'S OR CARRY A CHECK BOOK?)

This is just the simple law of supply and demand, and prices are determined by that,

THE MARKET PLACE IS FAR MORE SOPHISTICATED THAN THAT.  LOTS OF THINGS DETERMINE PRICES BESIDES SUPPLY & DEMAND.  SEE ECON. & MARKETING BOOKS FOR MANY EXAMPLES.

You will not be seeing any lower prices because of this -- you will merely see prices indicating a lower price for cash payers or a higher price for credit card users -- but the cash payers will be paying as much as they ever did.

YEA, IT WAS NEVER ABOUT THEM.  THIS IS ALL ABOUT WEAKENING VISA/MC'S MONOPOLY & LETTING MERCHANTS DEAL WITH PRICE SENSITIVITY.  IT'S NOT ABOUT CUTTING PRICES.

3
Comment #32 by Russ (anonymous) posted on
Russ
Federal Law supercedes State law so it doesn't matter if the states have laws against surcharges, the merchants there can surcharge as this wish now.

1
Comment #33 by Anonymous posted on
Anonymous
Most bank debit cards also have the visa or mastercard logo and when you use the card, you can select either option. I always choose debit because my bank does not charge me a fee for this. This works for me because I will not have to pay the new surcharge.

My boyfriend always chooses credit because his bank charges him a fee if he chooses debit but not if he chooses credit.

 so...if he uses his"bank card" but chooses the credit option, will he have to pay the new surcharge?

I have been searching for hours trying to find an answer to this question and I can't find anything. I can't understand why everyone isn't asking about it!

Information that I have found so far is not about the new surcharge but does say that retailers prefer that customers choose "debit" because the money is electronically transferred at no cost to them BUT if the cutomer chooses "credit" the retailer is charged a fee from the bank for the paper transaction.

This makes me think that there IS the possibility that it would be considered like a real "credit card" and then the surcharge fee could be passed on to the customer but I am not sure.

1
Comment #34 by Paoli2 posted on
Paoli2
#33 On the news today when they were discussing the credit card new charge, they made a point of indicating that people who use debit cards and do not put in their password and select "debit" will be charged the credit card fee.  They said if they use the password and select debit, it will not be considered a credit card issue in any way and they will not have to pay a fee.   It seems to be important now to use the password and select "debit" to bypass any credit card fees. 

1
Comment #36 by Anonymous posted on
Anonymous
how about NJ Transit commuters who have to buy their railroad tickets via a ticket vending machine, don't carry cash, use their credit card, and gets hit with the extra fee? of course, NJT may decide not to use the service fee, or the commuter must use cash or debit card and be greatly inconvenienced.  I can see commuters fishing out their cash to feed the vending machine for a ticket during rush hour, with the train about to close the doors ("All aboard!!"), and other commuters waiting on the ticket line while the cash payers slow down the entire ticket line!!  Or just pay the $5 penalty for buying the ticket on the train, or wait for the next train!!

1
Comment #38 by Anonymous posted on
Anonymous
where i go to get gas they not only charge more to use your debit card when yout done thery add on anorher dollar fort using your card , i livr in new jersey isn't thatr oubke dipping? is rtghuis really allowed? to charge you twice

1