Visa and MasterCard Users: Beware of New 4 Percent Surcharge

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.

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.

Daily Newsletter

Reward your inbox with the TPG Daily newsletter

Join over 700,000 readers for breaking news, in-depth guides and exclusive deals from TPG’s experts

Email address

Sign up

By signing up, you will receive newsletters and promotional content and agree to our Terms of Use and acknowledge the data practices in our Privacy Policy. You may unsubscribe at any time.

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?

[poll id="29"]
[card card-name='Premier Rewards Gold Card from American Express ' card-id='22035076' type='javascript' bullet-id='1']