About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Can Debit Card Purchases be Hit by the New Credit Card Checkout Fees?


You have probably heard in the news about the new credit card checkout fees that retailers are now allowed to charge in 40 states. This potential new fee is the result of a legal settlement that I first first reported on in July 2012. In summary, retailers are now allowed to add a surcharge when customers use their credit cards. You shouldn't see these new fees if you live in one of the ten states (including CA, TX, FL and NY) that have surcharge restrictions.

Many news reports have reported that this new checkout fee does not apply to purchases made using debit cards. However, not all have said this. A report on Fox News stated that consumers who use their debit card with the credit option (non-PIN) can also be hit with this surcharge. This seemed understandable since debit cards purchases go through the Visa or MasterCard network when you use the credit option. When you enter your PIN, they typically go through an ATM-type network. The interchange fees that stores pay for each debit card purchase are higher when they go through the Visa/MasterCard network and are more inline with credit card interchange fees. So it makes sense that stores may be allowed to add the surcharge fee when their customers use their debit cards without a PIN.

After a lot of searching, I found the answer to this question. Visa issued this Merchant Surcharging guide which provides all the requirements for merchants who want to add surcharge fees. In the Q&As for Merchants, a Q&A answers the question:

Q. Can I assess a surcharge on debit card transactions for which the cardholder using a debit card chooses “credit” on the point of sale terminal?

No. The ability to surcharge only applies to purchases made with a credit card, and only under certain conditions.

There you have it. Debit card users don't have to worry about using their PINs when they pay. I haven't found a similar Q&A from MasterCard, but it seems unlikely it would be different.

This is good news for all of us who participate in debit card reward programs. Reward checking is one big example. To qualify for high interest rates, you have to make a certain amount of debit card purchases per month. Some reward checking programs allow for both PIN and non-PIN debit card purchases to qualify, but there are a few that require non-PIN. And even if PIN debit card purchases qualify, many people prefer to make non-PIN purchases. In addition to not having to remember your PIN, non-PIN purchases can have extra protections. Another debit card reward program is the PerkStreet Financial checking account which provides cash back for non-PIN debit card purchases. Only non-PIN debit card purchases qualify for PerkStreet Financial cash back.

If you only use credit cards in the 40 states that don't have surcharge restrictions, you may not have to worry. As mentioned in this Plain Dealer article, "few if any merchants are expected to actually impose the charge, which likely would be 2 to 3 percent of a purchase." Just remember to keep an eye out for the surcharges. According to Visa's Merchant Surcharge Q&A, your store is suppose to "clearly alert consumers to the practice at the point of sale – both in store and online – and on every receipt." So this is suppose to prevent consumers from being surprised by the fees. However, I'm sure many consumers will miss these alerts. If you see a store that has started charging this fee, please leave a comment.

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  |     |   Comment #1
In many parts of the country, gas stations charge one price to cash customers and a price about ten cents per gallon higher to both credit card and debit card users.

Will the existing surcharge for plastic be replaced wit the new checkout fee?  Will credit card users be charged more per gallon PLUS a checkout fee?  Will the plastic surcharge be endd for debit card users?

  |     |   Comment #2
Ken, a million thanks for your diligent and tireless research.  That big "Whoosh" you just heard was your many loyal readers who don't live in one of the states with surcharge restrictions breathing a sigh of relief!

  |     |   Comment #3
I note, you will have to be VERY alert and look all around to catch all the "clear alerts" from those who add a surcharge. You will find you often don't even see it, because it will be small print somewhere in the cash register area perhaps but not right in front of you or where you expect. 

The idea all along was that taking a credit card would get the business higher volume, and that would cover any fees -- and if they didn't think so, they didn't have to take the card, could choose to forego that business. No one has to take a credit card. This new rule -- Obama doesn't understand what he's doing here -- simply undermines the consumer, and imposes a lot of effort on us every time we make a purchase to try to look all over the place to see if there is any surcharge, after already having wasted our time doing our shopping there whereas we might not have if we knew there would be a surcharge. Its no effort for the business to decide whether it wants to take the card; it is a LOT of effort on the consumer to try to figure it out every time you go to make a purchase at a thousand different places whether that one will be imposing a surcharge, and how much that surcharge will be and whether you want to pay that much extra and at this price. 

We had a VERY functional, simple system in which you always knew what was what and that benefitted all, including the businesses. Now we have a very shortsighted system geared to gouging in which you never know what the situation is. 
  |     |   Comment #4
I think you mean to say, "The interchange fees that stores pay for each debit card purchase that is processed as a credit transaction, as opposed to a debit transaction using your PIN, are higher since they go through the..."
  |     |   Comment #5
Finally something positive (financially speaking) for those of us in CT.  I was surprised CT was one of the states with restrictions, since we paid more for credit card use at many gas stations.

Does anyone know what happens when we shop online?
  |     |   Comment #6
me1004...........Yes, Obama did all this just to **** you off! You know they've done studies which show that the longer a online rant goes (in terms of words used), the chance that the writer invokes "Obama" increases not progressively, but geometrically. :)
  |     |   Comment #7
"Obama doesn't understand what he's doing here"    ???????

  |     |   Comment #8
Thanks Ken, for the diligent research and clarification.

This is not the end, but the beginning of the nightmare/confusion forming/trending for credit card users (in the ten states or not); it is not good.
  |     |   Comment #9
I am not Obama's biggest fan but I don't think he is responsible for any credit card surcharges.  Have no fear though.  I am sure we can find a lot of other things to blame him for.
  |     |   Comment #10
The County of Cumberland Tax Collection Division in Fayetteville NC does charge a processing fee which only applies to payments made by the use of a Credit/Debit card. It's interesting to note the bill calls it a processing fee but the website for online payment calls it a convenience fee. Fees charged are a min of $2.00 or 2.65% of amount paid, whichever is greater for payments with American Express, MasterCard, Visa Credit/Debit cards and Discover. Exception to this is "if using a Visa Consumer Debit" card the convenience fee is a flat $3.95 regardless of amount. The consumer alert is posted at point of payment and on billing notices.
  |     |   Comment #11
"UP" carges has been common pratice in the gun sales industry for many years.  Three percent most common.
  |     |   Comment #12
And another here in Fayetteville NC. The Public Works Commission (electricity/water) charges a $3.50 "convenience fee" for payment of utility bills with a credit/debit card on line or by phone. In both cases the payments are thru Western Union Speedpay which gets the $3.50 "acceptance & processing" fee. I know its posted online but as I don't pay that bill in my household I'm not sure if it's there.
  |     |   Comment #13
What happens if you live in one of the 10 states where this new fee is NOT allowed -- but purchase something on-line from a merchant in one of the other states where it IS allowed. Are they then allowed to charge you, or does it go by the state in which you live?

I'd think it'd be the state in which you live (just as how, for example, Amazon is national, but now charges California residents their local California amount of sales tax -- and charges New York residents their (different) correct amount of sales tax as it would be in New York).

But I'm not sure. Does anyone know? Say you're in Texas (where the fee is not allowed) but buy a toaster online using your credit (not debit) card from a merchant in a state where the fee is allowed. Is the merchant allowed to charge you the fee if you live in one of the states where the fee isn't allowed?

  |     |   Comment #14
Just found this page on Visa's website. Nice and clear:


Except of course it doesn't answer the question about if a merchant in a surchage state can charge the surcharge to an online purchaser living in a non-surcharge state. And what about if the retailer has multiple locations or a presence in both states that allow the surcharge and states that don't?

  |     |   Comment #15
It is my understanding that this new regulation does not apply to American Express. I guess my Amex Blue will get a workout from now on!
  |     |   Comment #16
UPDATE FROM VISA (if anyone's still reading this).

I emailed Visa my question about if an online (or telephone) retailer is in one state that allows surcharges, can they add the surcharge to a customer living in a state that does NOT allow the surcharge.

I got an automated response, but it seems the question was answered as part of it. Here is the relavant line:

*Please note, if a merchant is prohibited from surcharging in one state, Visa's rules do not prevent the merchant from surcharging in other states that allow the practice.*

So that seems to imply that if you live in California (a no-surcharge state) and order something from a merchant in a surcharge-okay state, it seems to imply that they cannot add the surcharge if the purchaser is living in a no-surcharge state. Or am I reading that wrong? Anyway, that's the response Visa sent.
  |     |   Comment #17
I have been charged twice now when using my Debit card. I read an article telling where to report this, but I can't find it now. Good to see it here that they can Not charge me. Going to pursue this further.

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