Photo (cc) by Philip Taylor PT
My heart skipped a beat last weekend when I heard about the proposed $7 billion settlement that may allow merchants to impose a surcharge on Visa and MasterCard purchases. I earn a tremendous amount of points, miles, and cash back by using reward credit cards, and I was scared that I might soon have to pay for the privilege.
But the more I learn about this settlement, and considering how the credit card industry works, the less concerned I’ve become. In fact, I’m resting easier tonight knowing that it’s extremely unlikely I’ll ever have to pay a surcharge to use my credit card.
1. Retailers are used to eating the cost of accepting cards
The proposed settlement will allow retailers to add a credit card surcharge to recoup the 1.5 – 3 percent expense they incur for accepting credit cards. But why would they? This expense has long been factored in to their cost of doing business. Recouping these fees at the register would be seen for what it is: a blatant attempt to increase a store’s profit at the expense of its customers.
2. Surcharges are illegal in many states
California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas all have state laws that prohibit credit card surcharges. These states include more than 113 million people – more than a third of the U.S. population.
3. Consumers are a powerful lobby
If retailers start adding credit card surcharges to purchases, people in the states that allow this practice might clamor for new laws to protect them. When you imagine the uproar that will occur when a major retailer announces “checkout fees,” last year’s outrage over bank fees will seem mild by comparison.
4. Retailers don’t want to discourage credit card use
Retailers gain from credit card use. They’re convenient for customers, transactions occur quickly, and buyers have the ability to finance purchases. At the same time, merchants incur little risk of fraud relative to accepting checks.
5. Surcharges will discourage sales
According to The Wall Street Journal, the settlement will require stores to “post notices at their store entrances and at their cash registers that they apply surcharges, and the dollar amount of the surcharge must appear on the customer’s receipt.” I can’t imagine prominent notices like these will help sales. If I saw a sign like that in a store, I’d probably go to a competitor’s.
6. The settlement may not be approved
This is a proposed settlement to a lawsuit involving many parties – but not all of them have agreed to its terms. According to The Wall Street Journal, the National Association of Convenience Stores has already rejected it.
Any merchant would like to increase their profitability by passing along credit card processing fees to customers. But now that Visa and MasterCard may finally allow them to do so, most will probably find it’s not in their best interest.