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Credit Card Surcharges: Another Reason to Avoid Using Credit

As if you needed another reason to try living without credit cards, a new card fee is now in effect. In 2012 MasterCard and Visa reached a settlement with a group of retailers who had complained the creditors were “fixing” the swipe-fees they charged to businesses. Not only did the card companies have to pay billions to settle the dispute, they also agreed to allow retailers to charge a “surcharge” to any transaction a consumer pays with a credit card; something they had previously forbidden1. According to the settlement, retailers are allowed to begin charging surcharges as of January 27th, 2013.

How Surcharges Could Affect Consumers

Merchants and retailers now have the option of charging consumers as much as 4% on all purchases made with a Visa or MasterCard. The charge is meant to equal the actual cost of processing the transaction paid by retailers, which is generally 1.5% – 3%2.  However, there are several restrictions. For example1:

  • The surcharge fee cannot exceed the swipe-fee the retailer pays itself
  • The surcharge fee cannot exceed the 4% cap
  • 10 states – CA, CO, CT, FL, KS, ME, MA, NY, OK, TX – have banned surcharges all-together, this settlement does not override those bans, meaning residents  will not be charged the surcharge by any retailers operating in those states.

In addition, retailers must disclose the surcharge. If a merchant intends to impose a surcharge fee, they must notify the consumer before they make an actual purchase. They must notify customers at the store entrance AND at the point of sale. Online retailers must notify customers on the first web page that mentions billing options and/or credit cards.

How Retailers Are Responding

Many large retailers have already issued statements saying they are not going to pursue charging surcharge fees at this time; they include: Wal-Mart, Target and Macy’s. However, Kroger (the largest grocery store company in the U.S.) has communicated that they would consider charging the fee to customers using credit cards with high fees3 and that they have not made a final determination yet. Consumers should be aware that smaller retailers and merchants generally pay higher fees for credit card transactions and therefore may begin implementing the surcharge more readily.

How to Avoid the Surcharge

Consumers can avoid paying the credit card surcharge by using a debit or pre-paid card as the settlement prohibits the use of surcharge fees on these types of cards. Good old fashioned cash is always a good way to avoid the fee (and make sure you’re sticking to your budget at the same time4.)

If you must use a credit card, American Express customers can also rest easy as the AmEx contract forbids retailers from levying a surcharge5. And if you think you can “game the system” by using a credit card that offers rewards or cashback in an effort to minimize the “damage”, be aware that few cards offer enough to recuperate the cost of the surcharge fee.

 

  1. The Motley Fool, http://www.fool.com/investing/general/2013/01/27/news-credit-card-surcharges-could-begin-today.aspx
  2. MSNBC, http://tv.msnbc.com/2013/01/28/credit-card-users-could-get-socked-with-4-checkout-fee/
  3. Bloomberg.com, http://www.bloomberg.com/news/2013-01-29/chains-may-avoid-surcharges-on-credit-card-purchases.html
  4. My Bank Tracker, http://www.mybanktracker.com/news/2013/01/28/avoid-credit-card-checkout-fee/
  5. ABC News, http://abcnews.go.com/Business/credit-card-fees-effect-sunday/story?id=18316310 

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