Settlement Allows Credit Card Surcharges

Rule Change Gives Merchants A Way To Offset Transaction Fees

Settlement Allows Credit Card SurchargesAs part of a pending $7.25 billion antitrust settlement, Visa and MasterCard have agreed to ease long-standing restrictions on merchants, allowing them to charge their customers an additional fee for using credit cards. The proposed deal – which must still be approved in U.S. District Court in Brooklyn, NY – would close out a class-action lawsuit that alleges Visa, MasterCard and several large banks conspired to set transaction fees artificially high, costing businesses extra money every time a customer paid with a credit card.

On its face, the rule change gives merchants a way to offset transaction fees, but it also presents an uncomfortable proposition. Fearing angry customers, many businesses appear unwilling to add what analysts say would likely amount to a 1% to 4% surcharge for credit card use. To that point, the Retail Industry Leaders Association, whose members include Wal-Mart, Target and Home Depot, has voiced its opposition to the settlement.

Per the terms of the settlement, if a business does opt to recoup transaction fees through a surcharge, it would have to post information about the added fee at cash registers and on customer receipts. It would be relatively easy then, analysts warn, for consumers to pick out merchants who are attaching surcharges. If surcharges are going to gain any acceptance, retail experts say merchants will need to convince consumers that the fees are a cost for convenience – an approach already used by many online brokers.

Further complicating the true impact of the deal, 10 U.S. states, including California and New York, outright ban credit card surcharges, creating a disadvantage for some stores if the fees become mainstream in the future. In the near-term, it seems even small credit card surcharges would compel customers to pay in other ways, like with debit cards (which are not affected by the settlement) or cash. In fact, poll data released this week by CreditCards.com shows 65% of Americans would stop using their credit cards if retailers start tacking on extra fees. Statistics show Americans have been making more purchases with credit cards than cash and checks since 2003.