Visa and Mastercard surcharge

[orangeblossom]

Visa and Mastercard will allow merchants to add surcharge to purchases starting tomorrow.  I know we've all seen signs at some businesses that say you have to spend "xyz" dollars in order to use your credit/debit card and the prevailing answer has always been that it  violates Visa and Mastercard merchant agreements.  Well that is not the case anymore.  The surcharge can be up to 4%.  Merchants still can't add a surcharge for debit cards.

www.nbcnews.com/business/attention-shoppers-another-credit-card-fee-here-1C8086499

It could soon cost you more to shop with a credit card at some stores. As of this Sunday, Jan. 27, merchants who accept credit cards issued by Visa and MasterCard will be allowed to add a service charge to the purchase price.

Visa and MasterCard had always prohibited merchants from doing this. They agreed to change the rules and allow the surcharge as part of the settlement of an antitrust suit brought by retailers.

The surcharge is supposed to equal the actual cost of processing the credit card transaction, which is typically 1.5 to 3 percent. Under the agreement, the fee is capped at 4 percent. The surcharge can vary based on the type of card. For example, it could be higher for a rewards card or premier card.

Merchants still cannot add a surcharge to debit card transactions.

The big question is: Will any stores do this? Should you worry about paying a credit card surcharge?

“We have discussed the settlement with many, many merchants, and not a single merchant we have spoken to plans to surcharge,” Craig Sherman, spokesman for the National Retail Federation (NRF), said in a statement. The NRF was not involved in the class action lawsuit.

NBC News contacted some of the country’s largest retailers. Wal-Mart, Target, Sears and Home Depot said they have no plans to add a credit card surcharge.

Credit card surcharges are banned by law in 10 states: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.

Visa and MasterCard have rules that require retailers to handle credit cards the same way in all of their stores across the country. That means a chain with stores in any of the 10 states where a surcharge is banned would not be able to have a surcharge at any of its stores.

The National Retail Federation points out that under terms of the settlement, a merchant who adds a surcharge to purchases on a Visa or MasterCard would have to do the same with American Express cards. But AMEX prohibits surcharge fees. So a merchant who accepts American Express as well as Visa/MasterCard would not be able to surcharge any of those cards.

“The bottom line is that very few retailers would be able to surcharge under the settlement, and that the vast majority don’t want to surcharge even if they could,” the NRF’s Sherman said.

Ed Mierzwinski, Director of Consumer Programs at U.S. PIRG agrees.

“In the brick-and-mortar world, no one who does any sort of volume business is going to want to surcharge because it will drive their customer crazy and slow down transactions,” Mierzwinski said.

In fact, most consumer advocates believe that except for some small retailers, a credit card surcharge is a non-issue in the short-term.

But Edgar Dworsky, founder of ConsumerWorld.org, worries that over time surcharges will gain traction.

”It’s predictable what’s going to happen,” he said. “We’re at the top of the hill and we’re going to start going down that slippery slope.”

Dworsky points out that stores factor in the cost of processing credit cards when they price their merchandise. Charging for that again, he said, would be double-dipping, unless stores rolled back their prices – which no one expects them to do.

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“We shouldn’t have gotten to the point, but unfortunately because of the court settlement we have,” Dworsky told me. “There’s no one standing up for consumers and saying that this is really bad.”

Dworsky points to Australia, where surcharging credit card use began in 2003. At first, few merchants charged the fee.  His research shows that approximately one-third of the sellers there – including some hotels, supermarkets, department stores and utilities – now charge extra to use a credit card. 

What about disclosures? 
The advocacy group Consumer Action has published a booklet on credit card checkout fees. It warns shoppers to be on the lookout for these fees and advises them to express their dissatisfaction.“Customers shouldn’t stand for it,” said Ruth Susswein Consumer Action’s deputy director of national priorities. “Our advice is to tell them you don’t like the fee and this makes you want to take your business elsewhere.”

The new rules from Visa and MasterCard require retailers who apply a credit card surcharge to post a notice at the store’s entrance. The exact percentage of the surcharge does not need to be disclosed until the point of sale. The customer receipt must list the amount of the surcharge.

Online stores with a surcharge will not be required to have a notice on the home page. They only need to alert shoppers about this when they reach the page where credit cards are first mentioned. In most cases, that means the final step of checkout when the purchase is being completed.

Not the end of this story 
The settlement that allows merchants to impose a surcharge is only preliminary. The court has yet to issue its final ruling in this case. That’s expected later this year. 

Once that happens, various retailers and business groups plan to challenge the settlement. That could drag into late 2014.

For now, the possibility that the settlement could be modified will probably keep most businesses of any size from instituting credit card fees.

“We’re not convinced this is going to be an issue,” Consumer Action’s Susswein told me. “They may never do it, but as individual consumers we need to be aware.”

[greencrayon]

I've been looking for a reason to stop using credit cards. Maybe this is it!

[mae141]

There is a restaurant nearby that I love. A while ago they raised their prices and started offering a "discount" if you pay with cash. It seems like they've been charging a surcharge without charging a surcharge.

[UMaineTeach]

DH was just a month ago arguing with a lady at TD Bank that stores should be allowed to pass the surcharge on to customers when she told him that it was illegal. She was absolutely applauded at his line of thinking.

[Wines Not Whines]

All gas stations near me already do this. There's a different price for credit vs cash. Are gas stations exempted somehow? Or is having two different prices different from a "surcharge"?

[mollybrown]

Ugh, thanks for the heads up. I will definitely be avoiding anyplace that adds a surcharge. The day this becomes standard is the day that I start using cash again.

[goaskalice]

No way I'm going to stop using our CC to pay. The rewards are how we pay for family Christmas present. Also, I do not carry cash consistently. It's easier for me to find another store with similar merchandise than pay a surcharge. Hopefully, merchants realize this. I think the lawsuit is a big waste of time.

[ESF]

Stores have to pay surcharges to Visa, MC, and banks when they accept credit cards. Those surcharges depend on whether the card is a rewards card or not, and for small stores, the surcharge on a premium rewards card can be as much as 4%. (That's how the credit card companies pay for your rewards) Big stores can negotiate much lower surcharges but small ones, who have no negotiating power and are seen as higher risk, are at the mercy of Visa/MC. I can understand why a small business would pass that cost on to the consumer, instead of shouldering a disproportionate cost of your free airline miles or having to charge higher prices to everyone to cover those increased costs.

Rewards cards are great but they do have an invisible cost. these new rules just make allow businesses to choose to make those costs more transparent. I like them.

[zacksbride]

Jan 26, 2013 12:13:50 GMT -5 Wines Not Whines said:

All gas stations near me already do this. There's a different price for credit vs cash. Are gas stations exempted somehow? Or is having two different prices different from a "surcharge"?

yeah, this has been commonplace where we live for some time.  not sure what the loophole is

[ESF]

Jan 26, 2013 12:13:50 GMT -5 Wines Not Whines said:

All gas stations near me already do this. There's a different price for credit vs cash. Are gas stations exempted somehow? Or is having two different prices different from a "surcharge"?

It's different. My understanding is that these proposed rule changes would allow retailers to pass on their costs of processing the cards, and allow them to discriminate in pricing based on the type of card. In other words, the current rules allow a cash rate and a credit rate. The proposed ones would allow a cash rate, a non-rewards rate (called 'qualified' in industry lingo), a low level rewards rate (mid-qualified), and a rewards rate (non-qualified).

For businesses, those rewards rates can be upwards of 4%, particularly if you are a small business with no negotiating power. The big card processing companies like First Data will offer very low rates to huge retailers because they generate so much business, but if you a tiny, you're screwed on the rewards rates.

So if any business adopts this practice, it's going to be small ones. Though it may be more complicated than its worth. I bet you'll really only see it with custom projects, home improvement, etc -- both because thats where there's not a lot of point-of-sale transactions and because those companies are considered higher risk for customer disputes, so their processing rates are higher than, say, a restaurant, and eat into a higher portion of their profit margin.

[Wines Not Whines]

That fee structure sounds really complicated.

I try not to charge amounts under $10 at small businesses because of the fee issue. I will charge larger amounts though, because I don't carry much cash with me.

[niq]

Woohoo! More reasons to use a debit card over a CC. Maybe someday the savings will be passed on to the consumer. Hey, we can dream, right?

Sent from my Nexus 7 using proboards

[Deleted]

Not legal in my state -- woo hoo!

One of our favorite restaurants offers a 10% discount on food that is delivered if you use cash instead of a credit card. That sways us every time. I understand why merchants do this.

I read an interesting article about restaurants accepting credit cards the other day. It was written from the opposite angle -- it was kind of about restaurants that are contemplating ONLY accepting credit cards -- but it discusses the issues of the fees. Relevant excerpt:

At the same time, customers' insistence that restaurants take cards has allowed companies like Visa, MasterCard and American Express to charge ever-higher merchant fees, leading some restaurant owners to question the value of plastic. These fees often range from 2 percent to 3.5 percent of the bill -- a significant chunk to a restaurateur running a business with a profit margin in the mid-single digits.

Take Sara Jenkins, the owner of two successful Italian restaurants in Manhattan's East Village. While reviewing the annual accounts at her upscale restaurant, Porsena, where about 90 percent of customers pay with plastic, she discovered that she had been charged $40,000 in card fees for the year.

"I could do a lot with $40,000 around here," Jenkins said. "The question I found myself asking was, do those fees bring so much business that it's worth it or would one be better off going cash-only? It's not really a question I've ever resolved."

She does know, though, that eliminating cards at this point would be risky. "There's a certain amount of my clientele that is older and more established, and they wouldn't bother [coming here] if I didn't take a credit card. They'd go right down the block to someone else," she said.

www.huffingtonpost.com/2013/01/23/credit-cards-restaurants-cashless-dining_n_2482242.html?ncid=edlinkusaolp00000003

[arch01]

I understand the reasoning behind this, but it's like the airlines charging $25/bag-most would rather see an increase in cost of the ticket itself instead of an "extra". I will not stop using our CC, but I will also not shop at places unless absolutely necessary that I know have a surcharge tacked on. It's a mental thing for me-I'll notice an increase in an item cost and grumble for a minute, but a surcharge will make me grumble every single time.

[LoveTrains]

Jan 26, 2013 12:47:47 GMT -5 ESF said:

Stores have to pay surcharges to Visa, MC, and banks when they accept credit cards. Those surcharges depend on whether the card is a rewards card or not, and for small stores, the surcharge on a premium rewards card can be as much as 4%. (That's how the credit card companies pay for your rewards) Big stores can negotiate much lower surcharges but small ones, who have no negotiating power and are seen as higher risk, are at the mercy of Visa/MC. I can understand why a small business would pass that cost on to the consumer, instead of shouldering a disproportionate cost of your free airline miles or having to charge higher prices to everyone to cover those increased costs.

Rewards cards are great but they do have an invisible cost. these new rules just make allow businesses to choose to make those costs more transparent. I like them.

ESF, I am actually surprised that this is your position. My issue is that at this point, stores have raised prices to account for the credit card fees. So stores have raised prices by 3% to take into account the credit card transaction fees, or new stores are taking into account the fees when making their business plans.

Therefore, adding a surcharge now, when the credit card fees have already been built into the price of an item, is just ridiculous and a way to fleece consumers, IMO.

My state doesn't outlaw this, but I doubt that retailers would do that kind of stuff in my state because otherwise I would jsut go across the state line to Mass. Heck, I already do half of my shopping in Mass anyway b/c the sales tax is less. 

[M]

My parents have several restaurants and they won't be doing this because they don't want to lose business. 1-4% adds up over time but looking the big picture it's not worth losing sales from passing the charges on to the customers. So I can't imagine many small businesses who regularly accepts CCs doing this but I guess we will see what happens.

[UMaineTeach]

Jan 26, 2013 12:47:47 GMT -5 ESF said:

Stores have to pay surcharges to Visa, MC, and banks when they accept credit cards. Those surcharges depend on whether the card is a rewards card or not, and for small stores, the surcharge on a premium rewards card can be as much as 4%. (That's how the credit card companies pay for your rewards) Big stores can negotiate much lower surcharges but small ones, who have no negotiating power and are seen as higher risk, are at the mercy of Visa/MC. I can understand why a small business would pass that cost on to the consumer, instead of shouldering a disproportionate cost of your free airline miles or having to charge higher prices to everyone to cover those increased costs.

Rewards cards are great but they do have an invisible cost. these new rules just make allow businesses to choose to make those costs more transparent. I like them.

That was DH's point with the TD Bank lady. She was trying to get us to
sign up for their rewards program where if we run the debit card as
credit is makes the business pay the fee rather than the bank paying the
fee and in return the bank will give us cash back.

DH told her
that he wasn't going to go around screwing small businesses to save the
bank money, and if anything the business should pass the cost on to him
for the convenience of using a card.

The woman was like .

[ESF]

Jan 26, 2013 14:51:32 GMT -5 LoveTrains said:

Jan 26, 2013 12:47:47 GMT -5 ESF said:

Stores have to pay surcharges to Visa, MC, and banks when they accept credit cards. Those surcharges depend on whether the card is a rewards card or not, and for small stores, the surcharge on a premium rewards card can be as much as 4%. (That's how the credit card companies pay for your rewards) Big stores can negotiate much lower surcharges but small ones, who have no negotiating power and are seen as higher risk, are at the mercy of Visa/MC. I can understand why a small business would pass that cost on to the consumer, instead of shouldering a disproportionate cost of your free airline miles or having to charge higher prices to everyone to cover those increased costs.

Rewards cards are great but they do have an invisible cost. these new rules just make allow businesses to choose to make those costs more transparent. I like them.

ESF, I am actually surprised that this is your position. My issue is that at this point, stores have raised prices to account for the credit card fees. So stores have raised prices by 3% to take into account the credit card transaction fees, or new stores are taking into account the fees when making their business plans.

Therefore, adding a surcharge now, when the credit card fees have already been built into the price of an item, is just ridiculous and a way to fleece consumers, IMO.

My state doesn't outlaw this, but I doubt that retailers would do that kind of stuff in my state because otherwise I would jsut go across the state line to Mass. Heck, I already do half of my shopping in Mass anyway b/c the sales tax is less. 

The thing is, big companies aren't going to do it for a few reasons.  First, their processing rates aren't high enough, and like you said, they have structured their business model to absorb those costs already.  Second, the costs associated with building systems and/or training and monitoring minimum wage employees on how to key in the cards, explain the surcharges, and deal with the customer service aren't really going to be worth it to them.  The huge card processing companies don't want to encourage customers to use cash, so they will probably cut better deals for the large retailers if they agree not to impose surcharges.  And there's a lot of competition there -- if Walmart does it and Target does not, Walmart will see millions of customers drive to the next strip mall over.  There's a reason why the National Retail Federation didn't join this lawsuit - they have zero interest in this proposal.

Smaller businesses are operating on a tighter margin and have no bargaining power when it comes to these rates.  Their processing rates can be changed at random by their provider. If the provider decides they aren't making enough money off of premium rewards cards, they pass that cost on to the smaller businesses.  If the businesses shop around for other providers, sometimes they are stuck with giant liquidated damages fees (like tens of thousands of dollars) for cancelling their processing contracts early.

I think most small businesses won't pass the surcharges on to consumers, because figuring out how to do that will probably cost more than it's worth.  The rates associated with each type of card are typically printed in books that are hundreds of pages long.  What you are starting to see instead are flat fee charges on whether it's a credit card or not -- $1 per transaction or something - to help offset the costs.

Where I think you'll see it is in situations where the business has time to prepare a bill, which are places with typically only a few high dollar transactions, like custom services, furniture, home repairs, small bed & breakfasts, car repair, etc.  Those are places where a $1 per transaction surcharge isn't going to make a dent in their hefty rewards card fees.

I do think that there are huge problems with extra fees here and there being tacked on willy nilly, fleecing consumers left and right.  But I don't see this as a situation where Verizon tacks on a made up tax on to a bill or AT&T inserts an "upgrade fee" that you have to pay for the privilege of continuing to pay them money.  The difference here is that these aren't new fees; rather, small businesses are already being fleeced by them.  And consumers aren't being told to empty their pockets but get nothing in return - they are getting miles, and cash rewards, and everything else.  

Personally, I think the rewards cards are designed as a system to encourage consumers to take on more debt than they can afford, while simultaneously milking businesses left and right for more money in fees.  Now I'm not disputing that many smart consumers do benefit from rewards cards, so if you use them and get a lot of free stuff, that's great.  But they do come at a cost.  And that cost isn't coming out of Citibank's bottom line, it's coming from the higher fees that Bob's Deli and Jim's Auto Repair have to pay.   The entire scheme is set up by the banks as a robbing Peter to pay Paul type of deal.  While in this one instance, consumers "win," they lose by having fewer small businesses and reduced consumer choice, higher start up costs associated with those small businesses, and no transparency in pricing.

If consumers don't want to pay the higher fees, they don't have to.  They just won't get their free airline miles.  I just don't see how that's suddenly a scam designed to screw them over more.  Rather, I think it's probably good for the country in the long run, because it will discourage debt and weaken the power of the credit card industry (and it's partners in crime, the credit reporting agencies) over our lives.