Begining Jan. 27, merchants such as Goldstone gained that right.
Under a
federal court case settlement
, they can put surcharges of up to 4 percent on Visa and MasterCard
transactions -- which account for about 70 percent of credit card
purahases -- to cover the cost of card interchange fees, or "swipe
fees."
But few merchants plan to use their newly won right -- not even
Goldstone.
"It's going to be used as leverage against credit card companies,"
the president of
ScanMyPhotos.com
explained. "Just knowing that merchants can (surcharge) will keep
them from raising rates."
Goldstone, whose company digitizes old photos, is a lead
plaintiff in an antitrust lawsuit that pits retailers against Visa,
MasterCard and major card-issuing banks. The swipe fee rule that
took effect Jan. 27 is one part of a preliminary settlement; the
other part, a $7.25 billion cash payout to retailers, faces final
approval later this year.
Expect no surcharge surge
Although the surcharge represents a big change in the rules of
retailing, the reality at most checkout lines -- and at e-commerce
companies such as Goldstone's -- will probably remain unchanged, at
least for now, according to retail experts and card networks.
Merchants can use the threat of surcharges as bargaining leverage,
but most of them don't want to irritate customers with an actual
fee, industry representatives said.
"While there can always be exceptions, merchants in general have
no intention of surcharging," said Stephen Schatz, spokesman for
the National Retail Federation. Some retailers including
Target
have issued statements denying plans to charge extra for card
use.
There are other hurdles. Laws prohibit the surcharge in 10
states that represent about 40 percent of the population. In
addition, the rules governing retailers who also take American
Express, which is not covered by the settlement, make it more
difficult for merchants to impose surcharges.
Visa, MasterCard ask surchargers to register
Retailers are supposed to register with the card networks in
advance if they intend to charge the fee. However, representatives
for
Visa
and
MasterCard
would not comment on the number of retailers that have signed up.
Visa referred all questions to the Electronic Payments Coalition,
an industry group that said it lacked surcharge registration data.
At MasterCard, spokesman Jim Issokson said the company considered
the information proprietary. Generally speaking, "We don't expect a
lot of merchants" to surcharge, he said.
That said, there are roughly 7 million merchants covered by the
settlement, so consumers somewhere will likely pay more to use
their credit cards.
"I have not heard from any retailers that are looking to jump
into it at this point," said Jeff Lenard, spokesman for the
National Association of Convenience Stores, "but there are 90,000
(stores) out there."
Without firm data, consumers don't know whether or where
surcharges will pop up. Some convenience stores were quick to offer
discounts for using debit cards after the Durbin Amendment to the
Dodd-Frank Act made that easier, so this sector is one to watch for
credit card surcharges. Convenience stores have long said that
swipe fees take a substantial bite out of their skimpy profit
margins.
Australian surcharge precedent
Other experts say surcharges are likely to pop up first in
noncompetitive sectors. That's what happened in Australia, which
started allowing surcharges in 2003. "Initially, it was hotels,
airlines and then some taxi and utility companies," said Edgar
Dworsky, former Massachusetts assistant attorney general in
consumer protection and founder of ConsumerWorld.org, an Internet
consumer research guide. "As the fees became accepted, they
extended to conventional retailers."
An analysis published by Australia's central bank found that
surcharges were slow to take hold in the retail sector, but they
gradually caught on. By the end of 2010, more than 40 percent of
the largest merchants imposed an extra fee for card use, according
to the analysis, with the typical surcharge being about 1.9 percent
for Visa and MasterCard transactions.
However, some merchants charge much more. Taxis routinely add 10
percent to a customer's bill if they pay with credit. The high
rates have sparked a backlash resulting in new rules that will
allow credit card companies to impose limits on merchant
surcharges, effective in March.
One argument for the surcharge in the U.S. is that consumers can
opt for cheaper payment methods, holding down the cost of
transactions and putting pressure on card networks to cut
interchange costs. Under the new rules, merchants can impose higher
surcharges for higher-cost cards such as reward cards. That in turn
could focus pressure on the popular card offers.
Some consumer advocates see this as a potential benefit for
consumers overall. "Cash customers are providing miles and other
rewards to credit card customers, and that is wrong," Edmund
Mierzwinski, consumer program director at U.S. Public Interest
Research Group, said via email.
Consumers loathe card surcharges
The threat of surcharges could be a potent negotiating tool for
retailers. In a
CreditCards.com survey
, 65 percent of Americans who use credit cards said they would pay
another way if any fee was charged. Others said they would balk at
card use depending on the size of the fee.
The credit card side disputes that consumers would see benefits
stemming from card surcharges, threatened or actual. Retailers
could end up "double-dipping," said Trish Wexler, spokeswoman for
the Electronic Payments Coalition. "Retailers have built fees into
their cost of goods -- if they're going to surcharge, I would hope
they would lower their prices across the board." The group, which
represents the card networks and issuing banks, has set up an
information site for consumers called
checkoutfees.com
.
Consumer Action, a San Francisco-based advocacy group, is
providing an
informational pamphlet
about the fees. "At first, it may be confusing for customers," says
Linda Sherry, the group's director of national priorities.
Retailers are not entirely behind the settlement either, raising a
question of whether it will receive final approval. Several retail
chains and industry groups have filed objections, saying that the
settlement would lock in overcharging by card networks and protect
them from future legal action over swipe fees. An objection
deadline is set for May 28, with a fairness hearing for the
settlement scheduled in September.
*
Correction
: As originally published, this article misspelled the name of
Mitch Goldstone's photo digitizing business. See the
CreditCards.com corrections policy.
See related:
Debit card swipe fee debate pits banks vs.
merchants
,
U.S. Senate fails to delay debit card swipe fee
restrictions