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Are You Ready for a Cashless Society?5 Important Things for Consumers to Know About the Credit Card Fee Settlement
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:
- The rule changes on surcharging likely would be implemented in early 2013 (Visa's press release)
- 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)
- 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)
- 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)
- 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.
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.
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.
New York's ban is moot. "Cash Discounts" are allowed. Gas stations are notorious for gouging with this tactic.
Possibly a service charge per check deposited.
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.
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.
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?
My take is that there should be no extra fee for debit care usage, period.
"... no extra fee for debit "card" usage, period."
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.
I wonder if that will have any effect on on-line sales.
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.
yea, small, online merchants are likely to add a credit-card surcharge, especially for tax-free transactions that are technically taxable.
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.
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.
http://video.foxnews.com/v/2119641363001/new-credit-card-surcharge-to-take-effect/?playlist_id=86929"
BTW please note that in my first post #34, I should have written it is the Pin they need to use not a Password. To me they are the same thing but it was mentioned as a Pin for the Debit cards.