A new credit card surcharge rule went into effect this past Sunday, allowing merchants in 40 states across the country to add a fee to purchase made by customers who use a credit card. The fee runs from 1% to 4% of the price of purchase, and it’s a fee for Visa and MasterCard users, the two companies that were involved in the settlement in a class action lawsuit with merchants.
The lawsuit was originally brought by merchants in an attempt to decrease the fees that are linked to credit card purchases. Merchants have always had to pay credit card companies a percentage of each transaction where the customer uses a credit card to pay.
The class action suit was an attempt for merchants to argue for lower swipe fees. But the settlement resulted in allowing merchants to pass that fee onto customers in states where the practice is legal.
In a statement released to the media, National Retail Federation’s Vice President Mallory Duncan stresses,
The ridiculous concept that merchants will start surcharging on any widespread basis is propaganda being spread by the card industry in an attempt to divert attention from their skyrocketing swipe fees. The lawsuit sought to bring down swipe fees and the prices paid by consumers, not to increase prices. The card companies’ new surcharging proposal runs 180 degrees counter to the intent of the lawsuit.
Craig Shearman, the vice president of government affairs public relations at the NRF, emphasizes that merchants do not want to charge this additional fee. “We have discussed the settlement with many, many merchants, and not a single merchant we have spoken to plans to surcharge,” Shearman says.
“Merchants have no desire to surcharge and no plans to surcharge. The concept of widespread surcharging is purely card industry propaganda.”
There have always been mom-and-pop establishments who take cash only, and credit card fees have been a huge reason for that. The surcharge rules are also tricky, which don’t help. “The settlement does include Visa/MasterCard rule changes that would theoretically allow merchants to surcharge, but anyone seeking to do so would have to meet a complex set of requirements,” says Shearman.
Not only is it difficult for merchants to implement a surcharge rule on customers, but varying state laws also make the process more difficult. Ten states ban this charge. For retailers that have stores operating among states that ban the charge and ones that don’t, they don’t have the option of charging the fee at all.
A brief history on credit card surcharges
Why do some states ban the charge and others don’t? Interestingly enough, historically, credit card companies are the ones who wanted to ban surcharges, because it would discourage consumers from using the cards if there were additional fees tacked onto purchases. “If consumers didn’t use credit cards, the card companies would not receive any of their fees — either the fees charged to merchants or the interest they earn on balances — and would ultimately be out of business,” says Shearman.
The lobbying was effective in the ten states that ultimately ended up banning the charges: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. In the other 40 states, the matter of the surcharge is between credit card companies and merchants, not a statutory one.
But it does seem like there will be states that are not going to sit quietly about these surcharges. Just yesterday, New Jersey senators introduced a new bill trying to outlaw them. In a press release, Senator Jim Whelan says,
Nationally we are starting to see gains in the economy, as we slowly pull out of the recession. Yet once again, New Jersey residents are hit with fees and charges at the check-out line that could have a real impact on families’ and residents’ budgets. Nearly a quarter of all purchases made in the US are made using a credit card and with the additional imposition of up to four percent in charges, this could negatively affect New Jersey’s growing consumer confidence.
Credit card company propaganda?
Despite the backlash against merchants for potentially adding a credit card surcharge, Shearman says it’s mostly unwarranted because it’s a way for credit card companies to divert public attention away from skyrocketing swipe fees that have gained them unwanted scrutiny from Congress.
“By getting people to talk about whether retailers are going to surcharge, people are talking about that rather than the card industry,” says Shearman.
“They’ve done it in a way that gives them the best of both worlds: people are talking about the retailers rather than the card companies, but they’ve placed so many restrictions on being able to surcharge that they don’t have to worry that very many — if any — retailers will actually surcharge.”