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Visa and MasterCard Users: Beware of New 4 Percent Surcharge

by on February 5, 2013 · 38 comments

in Credit Cards, MasterCard, Visa

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As a result of the largest antitrust settlement in United States history, merchants in 40 states are now able to tack on a fee of up to 4% per credit card transaction – spelling potential disaster for those of us looking to rack up miles and points by using credit cards.

The dispute dates to 2005, when retailers claimed Visa and MasterCard conspired to fix the processing fees that stores pay to accept credit and debit cards, typically 1.5-3% of the purchase price. Instead, merchants want to pass that fee along to consumers so that they don’t have to bear the brunt of it themselves as the cost of accepting credit card payments. However, most merchants have already marked up their goods and services to recoup this cost of doing business anyway, so those that do impose the fee could be double-dipping into customers’ pockets.

Credit Card Surcharge

The merchant or “checkout fee,” as it is being called, is capped at 4%. However, it can vary based on the type of card and what the merchant chooses to charge. For example, it could be higher for a rewards card or premium card than for a basic credit card, though it cannot be incurred on debit cards.

The good news is that ten states are blocking the new fees altogether: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. Credit card surcharges remain illegal in these states so they shouldn’t affect consumers anytime soon.

If you live in any of the other 40 states, be on the lookout: Merchants who want to start charging extra will be required to post a sign at their storefront announcing the extra fee. They’ll also have to disclose the fee at the checkout counter and on the receipt. Online retailers are required to post a notice on the first page that mentions credit cards.

That said, we’re likely not returning to the Wild West “cash only” days anytime soon. Big stores like Wal-Mart, Target, Sears, Rite Aid and Home Depot have said that they will not charge customers this fee, and many local mom and pop shops have said they do not plan on taking advantage of the new rule for fear of driving away business in an increasingly competitive economy. Many businesses also factor these fees into their pricing and the cost of doing business, so we’re not likely to see widespread changes anytime soon, though always be vigilant.

Another bright spot is that American Express cards won’t incur the checkout fee at all since Amex prohibits merchants from charging one, so you can always choose to use them at merchants that are charging the new checkout fee…if they accept Amex, that is. More interestingly, a merchant who accepts Amex as well as Visa/MasterCard would not be able to surcharge any of those cards, so that should help keep cardholders in the clear as well.

While I’m not going to be alarmist about this, it is disturbing to think that businesses can now routinely pass along a 4% charge to consumers, especially since credit card spending is one of the major (if not the major) ways to rack up frequent flyer miles, hotel points and credit card points like American Express Membership Rewards and Chase Ultimate Rewards. This could represent a huge devaluation in the value of those points – essentially requiring you to redeem them for at least 4 cents apiece in order to make your money back. I don’t think it will come to that, but it’s something to keep in mind.

What do you think?

Would you continue to patronize a business that charges a credit card transaction fee?

View Results

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Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

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  • http://twitter.com/Goat__Rodeo Goat Rodeo

    Most of my stateside travel is between Texas and California, so I’m happy this time of their state laws protecting the customer from getting jabbed with an additional fee. :)

  • http://twitter.com/sunkcosts slug

    I really think this will be a non-event. Most retailers are too smart to implement this. Those small businesses that feel justified might do so, and if their products are not easily substitutable, then they may survive doing so.

  • Dieuwer

    Boycott any store that charges a credit card transaction fee!

  • Adam Rogers

    I’m an avid points collector, but I believe the surcharge is fair. We’re receiving extra benefits at the expense of the stores who have to pay that surcharge. Why should cash customers have to subsidize our hobby?

    Paying with cash should always be the cheapest option. If a CC surcharge were to become the norm, everyone should stick with debit cards.

  • Jeff4jojo

    An airline is not a retailer and as soon as one of them, especially a big one, goes this route, they will all go that route. I expect that to happen for sure.

  • http://www.facebook.com/profile.php?id=1295432457 Mary K. Darrah

    As a points collector and a merchant in the Antiques business, we are used to discounting at times and taking offers; We are happy to take cards, but in my store you have always gotten a better price with cash or check. But we will not be charging a fee for cards. As a merchant we really do get beat up with fees on reward cards, but it really should be built into the price.

  • http://pulse.yahoo.com/_JNFSXN4ANC7RH5VQCOEJGFUJZQ Nick

    I am STUNNED that more merchants don’t do this. Gas stations offer cash and credit pricing, so why don’t other stores? It’s very simple…the posted price is the credit card price, and we offer a 3-5% discount for paying by cash or check.

  • AAJunkie

    Does anyone really believe that we aren’t already paying the surcharge? It’s already factored into the price.

  • TheOtherSobeBrian

    Retailers do benefit some by accepting CC (not sure its a 1.5-3% benefit) we dont have to do cash accounting at the end of every day, protect the cash and deposit the cash. It cuts down on potential theft by employees too. The % is annoying but its nice to have your $ go right to a bank account with a nice paper trail for accounting purposes.

  • Gordon

    I discussed this very topic with a friend who owns his own business. He surprised me by saying that cash customers don’t actually cost him any less in the long run.

    For cash, he said has additional costs such as paying an employee to go stand in line at the bank for deposits and for getting the necessary amount of small bills etc. for providing change. In contrast, the processing of the credit card income is transparent to him and he considers the extra % that he pays as a valid fee for the service received and the time saved.

    He also mentioned that if he operated a cash-only business he would go bust, whereas if he operated a credit-card only business he would still be fine. Thus, the credit card users are effectively keeping his business open and so the cash customers are actually benefiting from the business provided by credit card users – not vice-versa as I had expected.

    It was quite an illuminating conversation, turning a few of my preconceptions on their head.

    Of course, I’m sure that the usual “YMMV” caveat applies, depending on how each different business chooses to operate.

  • mikes

    Where does Discover fall in this mess?

  • Santastico

    I doubt big stores will charge this fee. They will basically lose customers to competitors that will not charge. I don’t pay anything in cash (carry a $20 bill just in case) and never carry my check book. All my purchases are in credit cards since you get points and it is very easy to track where you spent your money. It drives me nuts when I go to a check out and get behind someone that decides to write a check. :)

  • Nccet

    Our recent visit to Australia found a credit card surcharge to be the norm.

  • Mini73

    How do gas stations get away with charging a higher price for using a card including an Amex card?

  • http://www.facebook.com/profile.php?id=1295432457 Mary K. Darrah

    Yes and my dentist also gives 2 percent off cash or check

  • 3E

    This is not verified, so please check me on this, but I’ve heard that any company that does business in any of those 10 states can’t charge a fee in any of the other 40 states. So if this is true, shopping at nationwide stores are basically A-OK.

  • Abc123

    Because they are giving a “cash discount” as opposed to a “credit surcharge”. They have their stated price. They discount it for cash payment. There is no stated price, then a 4% fee for credit cards.

    That is how they get around it. It’s one half dozen or the other if you ask me.

  • bradsteven

    I was just in Europe, and was very concerned by the new trend of giving consumers a choice between being charged in EUR/GBP/etc. or USD. Those choosing to pay in USD are charged a 2 – 3 % F/X markup fee by the processor. At its core this is a scam, because the transaction is still subject to applicable foreign transaction fees from the card issuer, meaning there is absolutely no benefit to being charged in your home currency.

    What is most concerning about this is many POS employees do not honor your choice to pay in the local currency (EUR), and automatically charge you in USD. The receipt you then are asked to sign has a statement which confirms that you were given a choice and elected to pay in USD. So you are then faced with the decision to cause a scene or suck it up and lose the ~$1 or more that you were charged in commission.

    I really hope people get sued over this.

  • bradsteven

    Airlines have been doing this in Europe for years. But the reason the risk is lower here is because 1) They can’t label it as a SURCHARGE for credit/debit cards, it would have to be a DISCOUNT for other payment methods, and 2) people really don’t have much of a choice in these transactions other than credit/debit. The way I see it, the biggest risk is maybe they start to offer a discount for debit cards. Hopefully they don’t somehow find another way around this.

  • Picmeup

    I believe the first adopters of this rule will be those where competition is less, or none at all. Your doctor’s office will start charging 2-4% extra if you want to pay with CC. On a better note, some cash only doctor offices may now have CC payment with surchage.

  • FeeProneCAM

    When I use my AMEX to buy my Dunhills at a Tobacco Shop here in Phoenix, the merchant TACKS ON A FEE!

  • Jeremy

    As a CPA, I agree with you on this. Having cash has its costs as well and depending on the type of business can increase the risk of employee embezzlement significantly. Not to mention other costs you alluded to, the price paid for credit cards is well worth it.

  • Dave L

    I’m really shocked by the poll results. Since the price is already set by supply and demand, merchants are already charging you this fee if they want to. As a consumer, we should be focused on the total cost, not some 4% fee. If store A sells something 5% cheaper, but charges you 4% for using your card, you’d really shop at store B instead?

    I agree with Picmeup… places where there is little competition, or it’s difficult to “walk out of the store” will be the ones we have to watch out for. Some businesses might use it as a way to “advertise” lower prices…like a furniture store advertising a $999 couch that actually costs you $40 more. They’d use it as a hidden cost.

  • thepointsguy

    Agreed- I wonder how many people don’t think about it and say “oh fine- charge me in dollars”.

  • thepointsguy

    I just saw this in NJ right outside of the holland tunnel- 2% cash “discount”. Same thing as a credit card surcharge if you ask me. Needless to say, I didn’t fill up there

  • thepointsguy

    Very interesting. I bet the vendors that try to do this are low volume (like doctors offices) and thus less risk of theft/less labor needed to process the cash. In fact, I bet many business want cash to report less taxes

  • Jon

    Having worked in the credit/debit card field, I can tell you that merchant’s who accept credit cards end up with a higher “average ticket” than they would have from strictly cash sales. Even fast food restaurants are able to significantly increase their average sale over cash by accepting credit.

    Credit card fees are a cost of doing business. If merchant’s wish to raise their prices to cover their cost of doing business – that’s up to them. Consumers can decide if those prices are still competitive.

    However, for merchant’s to tack on 3-4% to a bill specifically for a customer’s use of a credit card, to me, at least, is as blatantly insulting as a merchant having the gall to add an advertising fee to my bill or to tack on a percentage of their electricity costs to keep the store lights on while I shop. After all, it is my credit card that allows me to spend MORE at their place of business.

    I would urge consumers who encounter any merchant that decides to tack on a credit card fee to make it known to the owner or manager that you don’t intend to shop there as long as they insist on passing along any credit card fees.

    If merchants think they are better off accepting only cash, they will soon be in for a rude awakening…..one which will COST them considerably MORE than those small credit card fees.

    Jon

  • http://twitter.com/llboyd El Boyd

    I believe retailers should have every right to charge any fee they want (as long as its not hidden). But it wouldn’t be smart on their part. I doubt this will affect most people/retailers. If retailers are smart they would play the reverse side of this (which they’ve always been able to do): offer cash payers a discount. I’ve seen a handful of local restaurants do this and certain gas stations have been doing this for a long time. Not only do they save merchant fees but cash is a lot easier to keep hidden from the IRS (for mom n pops).

  • John

    as a business owner of several businesses … we , like probably every other merchant out there factors this into price. not sure what this fuss is about. the merchants dumb enough to explicitly tack it on are stupid. the consumers pay for it and have beenpaying for this for YEARS anyway without them knowing.

  • Dave

    Its starting to look a lot like Asia. Everything has a fee.

    We are spoiled in that everything is buried into one price for most things we buy. So we think we are buying only what we want. When most of us are on vacation we expect all inclusive or at least not to have to pay for the bottle of water in your room.

    But what if you could go to a restaurant and refuse the side dish of rice pilaf you have no interest in eating or an order of oily fries you wish didn’t come with the plate in the first place.

    It would be interesting to see if institution of checked baggage fees drove prices down in terms of inflation. If so, since I don’t need 10 changes of clothes to match my shoes. I would rather pay less in baggage than subsidies someone obsessed with style that can’t leave their closet at home.

    If mom and pops soda costs less and it balances with a fee I’m ok supporting a small business. However, I suspect they are already charging me for the “privilege” of using credit.

    Never-mind they never have to worry about me bouncing a check for $ 1.69. If I noticed my staples going up in price I would advise them that its a bad idea and will result in short-term customers that will stock up next time they are at Costco out of spite.

    Cheap businesses will likely be sorted out and if not they will have to spend more of there day lugging pennies to the bank while filling out a deposit slip and standing in line instead of having a nice chat with loyal customers.

  • Lars

    An interesting and not completely irrelevant thing to note is that IKEA in the US used to give you 1% discount if you paid by debit card instead of credit card. But as of a few months ago they discontinued the practice.

  • valuegal

    I’ve noticed that, too! Another good reminder to leave those “foreign transaction fee” credit cards at home when traveling in Europe to at least avoid that fee.

    Speaking of Europe, I always make sure to have at least one EMV chip card in my wallet to avoid being stranded at unmanned UK train stations whose machines will not accept a credit card without an EMV chip. More and more places over there are not accepting chip-less cards.

    Chase Hyatt came out with the chip early, and it’s nice to see Citi Hilton has stepped up as well. Amazing that AMEX Platinum is still noticeably lacking the EMV option.

  • Scott Cunning

    “Another bright spot is that American Express cards won’t incur the checkout fee at all since Amex prohibits merchants from charging one, so you can always choose to use them at merchants that are charging the new checkout fee…if they accept Amex, that is. More interestingly, a merchant who accepts Amex as well as Visa/MasterCard would not be able to surcharge any of those cards, so that should help keep cardholders in the clear as well.”

    Why would you need to choose to use Amex to avoid the fee? As you point out, if they accept Amex, ipso facto, there is no fee.

  • guy

    The AMEX platinum now has a chip; give customer service a call and they’ll send you one.

  • Wildsman

    The point isn’t about that – the point is that you get a lower price by paying cash/cheque.

  • Just Somebody

    Perhaps if Office Depot was “allowed” to do this on the AMEX giftcards, for which they are only allowed to charge $4.95/$500 = 1% and then get billed up to 3% by the CC company, they wouldn’t be pulling them from the shelves (leaving the “fraud” issue, if any, aside for the moment)… just saying…

  • http://www.cardauthorizer.com/ credit card processing

    I believe the first adopters of this rule will be those where competition is less, or none at all. Your doctor’s office will start charging 2-4% extra if you want to pay with CC. especially a big one, goes this route, they will all go that route. I expect that to happen for sure

  • Max

    Here in the Philippines these big banks and their partner credit card companies bribed gov’t officials to prohibit retailers from posting a ‘card price’ and a ‘cash price’. The result of this is that cash buyers will also pay for the credit card fee. It’s not fair to them.

    One thing more, the big chains are able to bully the banks into charging them half the fee that the banks charge the small mom & pop stores making the local merchants even less competitive.

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